Suppose the US Federal Government decides to increase its spending without issuing debt by raising additional taxes (i.e., tax-financed government spending). Which of the following statements describes how tax-financed government spending affects the price level over the short run and the long run?      The price level remains unchanged over the short run and the long run.       The price level increases above it's initial level in short run and further increases over the long run.       The price level decreases below it's initial level in the short run and further decreases over the long run.       The price level decreases below its initial level in the short-run but increases above its initial level over the long run.

Q: part 1. A government runs the budget at government spending G=8 and income tax T=7. The NX=0. The…

A: Given information G=8 T=7 NX=0 I=5 Autonomous consumption=3 MPC=0.6 AD=C+I+G+X-M

Q: An economy's IS curve represents the following markets. Goods: slc = 4 MPC = 0.7 G = 10 T = 9…

A: Given MPC=0.7 G=10 T=9 I=10-90r r=0.047 Initially, the value of aggregate expenditure is Y0=44.9 The…

Q: Suppose the US Federal Government decides to engage in deficit spending whereby it increases its…

A: Fiscal policy means using government expenditure and tax policies to influence the economic path…

Q: The graph below shows the Laffer Curve. Using the point drawing tool, identify a tax rateltax…

A: The Laffer curve depicts a relationship being theoretical between the tax rates and the resulting…

Q: 2. What is the largest component of the federal budget? A) Entitlements C) Defense B) Net interest

A: Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: Right now many economies in the world are experiencing a downturn due to the Corona Virus. a) What…

A: Hello, thank you for the question. Since there are multiple subpart questions posted here, only the…

Q: Suppose the US Federal Government decides to increase its spending without issuing debt by raising…

A: Economy is at the natural level if the GDP is at the potential level, inflation is at the expected…

Q: Fiscal policy consists of intentional changes in the government's spending levels or tax policies…

A: If the government increases spending,government expenditure will increase. Therefore aggregate…

Q: TRUE/FALSE According to the Laffer curve, increases in tax rates always result in less tax revenue.

A: Laffer curve shows graphically the relationship between tax rate and tax revenue.

Q: You are the Secretary of the Treasury, working with the president to implement appropriate policies.…

A: Fiscal policy is set by the government to influence economic growth. It  is a change in government…

Q: K During the 1980s, the controversial economist Arthur Laffer promoted the idea that tax increases…

A: Tax is a mandatory financial charge or levy imposed by a government on individuals, businesses, or…

Q: The following graph plots an aggregate demand curve. Using the graph, shift the aggregate demand…

A: Demand- willingness, and ability of a consumer to buy a particular product or service at a specific…

Q: In the 2009 stimulus package, Congress included tax cuts as well as changes in government spending.…

A: Several tax increases were debated as part of the debate about economic stimulus in the aftermath of…

Q: Suppose the government implements contractionary fiscal policy. As a result, the inflation rate will…

A: Actions by the government to either expand or tighten the economy, are under the “fiscal policy”,…

Q: In an economy such that: C = 200 + 0.80 (Y – T)           Md = 0.20 Y - 10 R I = 40 - 20 R…

A: In the goods market, the equilibrium is attained when the aggregate expenditure is equal to the…

Q: Which of the following statements is correct?     A decrease in the size of a tax always decreases…

A: Deadweight loss refers to the situation where the increase in price reduces the total surplus in the…

Q: Why does a balanced budget increase in spending and taxes increase aggregate demand?

A: balanced budget increase in spending and taxes mean that, both government spending (G) and taxes (T)…

Q: Changes in taxes The following graph plots an aggregate demand curve.   Using the graph, shift the…

A: Aggregate demand is the total demand of the goods and service in a year. It is the summation of…

Laffer Curve Analysis

In terms of economics, the Laffer curve was popular among those economists who were or who belonged to the supply side of the economic peripheral.  This concept was popularized by the famous supply-side economist known as Arthur Laffer. This curve illustrated the relationship between the tax rates and government revenue. It is already known that the tax which the public or individuals residing in an economy bear is the revenue or income of the government with the help of which the government does all the necessary works in the society, which is beneficial for the economy.