Answered: Q.1.18 The implementation lag is for…

Q.1.18 The implementation lag is for monetary policy and for fiscal policy. (1) Extremely short; long; (2) Long; extremely short; (3) Long; long; 4) ong: chort

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that an upcoming political election causes anxiety among consumers and consumption falls. Show the effects on your graph and label the new equilibrium point "2." Lastly, our government wants the economy to return to full-employment as quickly as possible. Should it intervene? If so, show the impact of successful fiscal policy on your graph. Label this new equilibrium point "3."
Consumption expenditure: Investment expenditure: C = 100 +0.8 Yª I= 120 - 5001 Deficit of 50 MD = 200 - 2000 i + 0.1Y Money supply: Lump-sum taxes T=150 Current account Government budget balance Money demand M=100 Vhere i is the interest rate, Y is the real GDP; Ya is the disposable income Suppose government expenditure (G) rises by 50 $ because of increased expenditure on education. What is the new equilibrium Y? Select one: O a. 1444.44 cross out O b. 2000 cross out cross out O c. 2444.28 cross out O d. 4400 cross out O e. 4600.54
Price Level p* a LRAS Y* AD Real GDP AS Tools Fiscal Action 0 a. How does the short-run equilibrium compare to the initial equilibrium? The price level has (Click to select) and output has [(Click to select) b. What is the primary concern of policy makers under these conditions? high unemployment O declining value of the dollar O high Inflation V c. What policy action might the government take in order to improve economic conditions? (Click to select) fiscal policy by [(Click to select) taxes and/or (Click to select)government purchases d. Use the graph above to depict the goal of the fiscal action discussed Instructions: Use the tool provided 'Fiscal Action' to show the result of the policy action taken by the government. Plot only the endpoints of the line (2 points total). Label your line appropriately. e. What is the desired final outcome after the fiscal policy action and multiplier effect have occurred? A price level [(Click to select) P* and an output level [(Click to select) Y*…
13. Suppose that two countries differ on in the size of their MPC, where the MPC is high in country A and low in country B. Draw IS/LM and AD/AS curves for each country. In which country will monetary policy be most effective at changing income? Fiscal policy?
Continuing the situation in the above question (i.e. suppose the economy begins in a long-run equlibrium at potential output when the government decides to alter spe and/or taxes to make the budget deficit smaller). What would be the long-run impact of this action? 000 unemployment and investment spending are unchanged unemployment is higher and investment spending is unchanged Unemployment is unchanged, but there is more investment spending unemployment is higher and there is less investment spending
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When the demand for money as a medium of exchange is high, the impact of fiscal policy on aggregate product is magnified by the crowding out effect. Select one: O True O False Check
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The graph below depicts an economy where an increase in aggregate demand has caused Inflation. Assume the government decides to conduct fiscal policy by changing taxes to bring Inflation under control. Price Level 160 150 140 130 120 110 100 90 80 70 60 50 Fiscal Policy LRAS AS Real GDP (billions of dollars) AD₁ AD 40 80 160 240 320 400 480 560 640 720 800 Instructions: Round your answers to 2 decimal places. If you are entering a negative number include a minus sign. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? billion b. If the MPC is 0.75, how much do taxes need to change to shift aggregate demand by the amount you found in part a? $ billion Suppose Instead that the MPC is 0.5. c. How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and taxes need to change by $ billion.
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The response of the economy to fiscal consolidation a. Use an IS-LM diagram to show the effects on output of a decrease in government spending. Can you tell what happens to investment? Why? b. Discuss the effects of fiscal consolidation on budget deficit and equilibrium output. How can monetary policy offset the effects of fiscal consolidation on output?
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