Refer to the figure above. If the economy is at point b, to close the output gap the appropriate fiscal policy would include

Q: Fiscal policy determines the level of interest rates.True or False

A: Fiscal policy: It refers to the policy which is used by the government so that it can make…

Q: Distinguish between automatic fiscal policy and discretionary fiscal policy. What type of fiscal…

A: Fiscal policy refers to the government policy regarding tax and government spending which stabilizes…

Q: Assume there is a decrease in the aggregate demand, if expansionary fiscal policy is being used, the…

A: Fiscal policy is the kind of policy using which government adjusts its spending levels and tax rates…

Q: Suppose actual real GDP is $13.19 trillion, potential real GDP is $12.96 trillion, the marginal…

A: Marginal Propensity to Consume(MPC): The marginal Propensity to Consume refers to the proportion of…

Q: Suppose, the Australian economy is in good shape (operating at its productive capacity Y*). However,…

A: Due to increase in spending and fiscal expansion,interest rates would be lowered.

Q: Explain how the conduct of fiscal policy affects consumption and investment in equilibrium.

A: Fiscal policy is a macroeconomic policy that is implemented by the government for monitoring and…

Q: If the government tries to reduce inflation when the production level in the country is higher than…

A: Fiscal policy is a tool used bu government to bring the economy back to full employment.

Q: Suppose the economy is in equilibrium at point B which is below the full-employment output of point…

A: Macroeconomics examines the working, composition, and dynamics of an economy. AD/AS model is used…

Q: Suppose the economy is in a recession.  To combat the recession, Congress has decided to allocate $1…

A: A recession is a temporary period of economic slowdown, generally defined as  a fall in GDP over two…

Q: Fiscal policy of increasing government expenditures can be more potent than monetary policy in…

A: Fiscal policy works through changes in government expenditures and changes in taxes, while monetary…

Q: Suppose equilibrium GDP is less than full-employment output and the economy is in a recession. What…

A: If the economy is in a slump and equilibrium GDP is below full employment, the government's goal…

Q: Define what is 'automatic stabiliser' in fiscal policy, and provide 2 examples

A: Meaning of Fiscal Policy: The term fiscal policy refers to the situation under which the…

Q: Suppose actual real GDP is $7.91 trillion, potential real GDP is $13.33 trillion, the marginal…

A: Marginal Propensity to Consume(MPC): The marginal Propensity to Consume refers to the proportion of…

Q: Explain the reasons why lags in fiscal policy can create statements such as this: “The member of…

A: Fiscal policy refers to the one of the types of economic policies, which is implemented by the…

Q: If the economy is producing in the intermediate zone of the ad/as would you suggest discretionary or…

A: The government of the country takes the help of fiscal policy measures to maintain balance in the…

Q: The Government has a $0.8 Trillion Growth target. What fiscal policy should they implement if MPS =…

A: To stimulate growth, government uses expansionary fiscal policy, by increasing spending (G) or…

Q: What are some key factors that policymakers should consider when determining the optimal balance…

A: Fiscal policy refers to the use of government spending and taxation to influence the overall state…

Q: Use what you have learned about the fiscal multiplier to explain why, in Krugman’s opinion, fiscal…

A: Introduction Paul Krugman is an American economist and Nobel Prize laureate who works at the…

Q: Fiscal policy of increasing government expenditures can be more potent than monetary policy in…

A: Fiscal and monetary policy: Fiscal policy signifies the policies taken by the government of an…

Q: Which of the following could NOT be contractionary fiscal policy tool? OA) decreasing government…

A: Decreasing taxes is an expansionary economic policy tool, not a contractionary one. Contractionary…

Q: Which of the following is NOT a fiscal policy action? Group of answer choices decreasing government…

A: The answer is - raising the quantity of money in circulation

Q: Which type of discretionary fiscal policy is likely to have the smallest overall effect on GDP…

A: Discretionary fiscal policy is the government policy to control economic growth and aggregate…

Q: Cite the five major demand-side components of GDP. Then, identify the major elements affected by…

A: Gross domestic product of a country is the market value of all final commodities and services that…

Fiscal Policy and Money Market

Fiscal policy is one of the important tools that is used by the government to control inflation or aggregate demand in the economy. Under this policy, there are two rules which are used by the government, one is the expenditure of the government and the other is the taxation or income of the government which it collects from the public.