W, J, EThe following diagram illustrates an economy where its current level of GDP (i.e. national income, Y) is Ye.E0YFAssume that the government wishes to use fiscal policy to achieve the full-employment.level of GDP (YF). It coulddecrease government expenditure by fd.increase government expenditure by YF - Ye.decrease government expenditure by YF - Ye.increase government expenditure by fd.

Diagram Explanation Current GDP (Ye): This is the current level of national income or…

Answered: W, J, E The following diagram…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 3P

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Exercise D24 Compare two policies: a tax cut on income or an increase in government spending on roads and bridges. What are both the short-term and longâ€”term impacts of such policies on the economy?
Why is spending by the U.S. government on scientific research at NASA fiscal policy while spending by the University of Illinois is not fiscal policy? Why is a cut in the payroll tax fiscal policy whereas a cut in a state income tax is not fiscal policy?
Under what general macroeconomic circumstances might a government use expansionary fiscal policy? When might it use contractionary fiscal policy?
Answer exercises 11-14 on the basis of the following information. Assume that equilibrium real GDP is $800 billion, potential real GDP is $950 billion, the MPC is .80, and the MPI is .40.
How can fiscal policy eliminate GDP gap
Explain, using appropriate diagrams, how a rise in the household saving rate cancause a fall in GDP, and how a fiscal stimulus might offset this.
Use the following equations for exercises 16–18. C= $100+.8Y I= $200 G= $250 X = $100.2Y
Potential GDP 450 C+l+G+X-IM) F T 4,000 5,000 6,000 Real GDP (billions of dollars per year) In Figure 11-1, the slope of the expenditures schedule is 0.75, and the govemment wishes to achieve full employment. It should cut spending by 1,000. increase spending by 250. cut taxes by 1,000. cut taxes by 250. increase spending by 1,000. Real Expenditure
Assume that country has a MPS of 0.2. Calculate the maximum change in Real GDP as a result of the fiscal policy action. Also, indicate if it is an increase or decrease. a. The government increases spending by $6 million. b. The government decreases taxes by $8 million. c. The government increases taxes by $100 million. d. The government decreases spending by $15 million.
What is fiscal imbalance? Fiscal imbalance is the _______ value of the government's commitments to pay benefits minus the _______ value of its tax revenues. A. future; future B. future; present C. present; future D. present; present
ineim Suppose the government decide to use fiscal policy to close the output gap. The marginal propensity to consume is 0.6 and the output GDP is $150 million Çalculate the minimum change in government spending required to close this output GDP
Which of the following fiscal policy actions would be appropriate if the economy is experiencing an recessionary gap? OA. a decrease in government spending B. a decrease in the money supply C. an increase in interest rates D. a decrease in taxes

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