Using the following formula, how much would the Fed have had to reduce long-term interest rates to get the same stimulus as President Trump’s $200 billion increase in government spending? Bernanke’s policy guide: 1/4 point reduction in long-term interest rate = $50 billion fiscal stimulus
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Using the following formula, how much would the Fed have had to reduce long-term interest rates to get the same stimulus as President Trump’s $200 billion increase in government spending?
Bernanke’s policy guide: 1/4 point reduction in long-term interest rate = $50 billion fiscal stimulus
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- The economy is at full employment, with fairly low levels of unemployment and inflation. What is likely to happen to GDP, unemployment, interest rates, and inflation if: a) the government increases its surplus. b) the government increases its deficit. c) the government increases its surplus at the same time that the Fed is reducing the money supply. D) the government increases its deficit at the same time that the Fed is reducing the money supply. e) the government increases its surplus at the same time that the Fed is increasing the money supply.Match the correct policy with its description. Column A 1. 2. 3. 4. During a contraction or recession, the government can do two things: Decrease Taxes Or Increase Spending During a period of excessive inflation (during a period of expansion), the government can do two things: Increase Taxes Or Decrease Spending Increased lending by banks to customers (increased money supply) Lower Interest Rates on loans and bank accounts Increased borrowing from the Fed by banks Decreased lending by banks to customers (decreased money supply) Higher Interest Rates on loans and bank accounts Decreased borrowing from the Fed by banks % 5 M Column B a. Expansionary Fiscal Policy b. Contractionary Monetary Policy c. Contractionary Fiscal Policy d. Expansionary Monetary PolicyMost economists agree that individual consumers and business cannot pull the economy out of a severe recession without help from either the government or the Federal Reserve. Which group(s) believe fiscal policy is ineffective: Keynesians or Monetarists? Briefly explain the answer. Which group(s) believe monetary policy is ineffective in the short run: Keynesians or Monetarists? Briefly explain the answer. Which group(s) believe monetary policy is ineffective in the long run: Keynesians or Monetarists? Briefly explain the answer.
- Suppose you are the president of a country whose government debt-to-GDP ratio is exploding, and you want to stabilize this ratio. One of your economic advisers (not a graduate of UPSE) tells you to "monetize debt." According to your adviser, this will save the interest payment on debt, since the government will pay zero percent on the monetary base that will be created from the rise in money supply. You should fire your adviser, because: this is equivalent to defaulting on the government debt which only postpones the repayment of debt to a later period. O b. the adviser confused seigniorage with inflation tax which is why his recommended policy would fail. O c. O d. GDP will fall, too. while this might help to stabilize the debt-to- GDP ratio, but it will result in exploding inflation.According to Bernanke’s policy guide, Bernanke’s policy guide: 1/4 point reduction in long-term interest rate = $50 billion fiscal stimulus what is the fiscal policy equivalent of a 0.25 percent cut in long-term interest rates?Advocates of fixed policy rules believe that Discretionary policies can improve macro outcomes. Appropriate macro policy would include constant fixed-rate increases in the money supply and balanced federal budgets. Due to the problems implementing fiscal policy, the economy would be better off if the Fed controlled discretionary fiscal policy. All of the answers are correct.
- What is the importance of fiscal policy during times of economic recession? What is the reason why fiscal policy should be in tune with monetary policy when the economy is in the recession phase? What is the importance of the Central Bank in the financial market?One of the main arguments against using Fiscal Policy is the crowding out effect. Suppose the government uses government purchases to stimulate the economy. Explain quantitative easing? If the Fed’s current policy is quantitative easing, do you think that there is a danger of the government’s current fiscal policy being crowded out? Why or Why not? Explanation required.Which of the following statements is false? It might sometimes make sense for a government to combine an expansionary monetary policy with an expansionary fiscal policy. If spending is very responsive to changes in interest rates, and the demand for money is interest inelastic, then monetary policy tends to be more powerful than fiscal policy. It would never make sense for a government to combine an expansionary monetary policy with a contractionary fiscal policy. If spending is not very responsive to changes in interest rates, and the demand for money is interest elastic, then fiscal policy tends to be more powerful than monetary policy
- 14) During a period when economic growth is very strong and inflation rates are rising to uncomfortable levels, Federal Reserve policymakers might decide to pursue which type of monetary policy? 15) Which of the following pairs of terms is used to describe fluctuations in the economy? 16) During a contractionary phase of the business cycle which of the following most likely occurs? 17) Which of the following regulations prevent price gouging? 18) what does fiscal policy include?The economy is experiencing rapid inflation, pushing above 9%. Which fiscal policy action should the government implement in an attempt to fix this problem? A.) decrease interest rates B.) raise taxes C.) increase spending D.) increase reserve requirementsPlease Read the Following Paragraph and Answer the Following Questions Oman’s government will finance most of its budget shortfall in 2021 by borrowing to plug a fiscal gap battered by a decline in oil prices and the coronavirus pandemic. The Persian Gulf state is looking into borrowing that will cover 73%, or 1.6 billion rials ($4.2 billion), of the country’s 2.2 billion-rial shortfall, with the remaining 600 million rials to be drawn from its reserves, according to a post on Twitter by the state-run Oman News Agency on Friday. The government based its 2021 budget plan on an oil price of $45 per barrel. Other highlights from Oman’s 2021 budget: • Expenditure is set to fall to 10.8 billion rials, a 14% drop from the previous year. • 2021 revenue is set to fall to 8.6 billion rials, a 19% decline. • Budget deficit at 8% of gross domestic product in 2021, 2.2 billion rials. Oman has taken measures such as reduced spending and plans to impose a 5% value-added tax in 2021. It…
