Chapter11: Fiscal Policy
Section: Chapter Questions
Problem 3SQP
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Question
1. Why is a $100 billion increase in government spending on goods and services more expansionary than a $100 billion decrease in taxes?
2. How does each of the following affect the aggregate demand curve?
a. Government spending increases.
b. The amount of taxes collected decreases.
3. In each of the following cases, explain whether the fiscal policy is expansionary, contractionary, or neutral.
a. The government decreases government spending.
b. The government increases taxes. c. The government increases spending and taxes by an equal amount.
4. Why does a reduction in taxes have a smaller multiplier effect than an increase in government spending of an equal amount?
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