Suppose the government uses a balanced-budget policy, Önancing its expenditure by lump-sum taxes (i.e., G = T) Suppose the government wants to achieve the same output level as in the no-tax case in 1 (b) above. (output level = 3800) i. Does it have to increase or decrease its expenditure (G) and taxes (T) with G = T , and by how much? ii. What is the value of the balanced-budget multiplier? iii. In the no-tax case in 1 (b); the G-policy can eliminate any trade imbalance (i.e., make NX = 0). Would the government be able to achieve exact trade balance as well under the balanced-budget policy here? If not, would there be a trade surplus or trade deficit, and how big is the surplus/deficit
Suppose the government uses a balanced-budget policy, Önancing its expenditure by lump-sum taxes (i.e., G = T) Suppose the government wants to achieve the same output level as in the no-tax case in 1 (b) above. (output level = 3800) i. Does it have to increase or decrease its expenditure (G) and taxes (T) with G = T , and by how much? ii. What is the value of the balanced-budget multiplier? iii. In the no-tax case in 1 (b); the G-policy can eliminate any trade imbalance (i.e., make NX = 0). Would the government be able to achieve exact trade balance as well under the balanced-budget policy here? If not, would there be a trade surplus or trade deficit, and how big is the surplus/deficit
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Suppose the government uses a balanced-budget policy, Önancing its expenditure by
lump-sum taxes (i.e., G = T)
Suppose the government wants to achieve the same output level as in the no-tax
case in 1 (b) above. (output level = 3800)
i. Does it have to increase or decrease its expenditure (G) and taxes (T)
with G = T , and by how much?
ii. What is the value of the balanced-budget multiplier?
iii. In the no-tax case in 1 (b); the G-policy can eliminate any trade imbalance
(i.e., make NX = 0). Would the government be able to achieve exact trade
balance as well under the balanced-budget policy here? If not, would there
be a trade surplus or
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