Why is a $100 billion increase in government spending on goods and services more expansionary than a $100 billion decrease in taxes?

MACROECONOMICS FOR TODAY
10th Edition
ISBN:9781337613057
Author:Tucker
Publisher:Tucker
Chapter11: Fiscal Policy
Section: Chapter Questions
Problem 3SQP
icon
Related questions
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?

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Inflation and Unemployment
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
MACROECONOMICS FOR TODAY
MACROECONOMICS FOR TODAY
Economics
ISBN:
9781337613057
Author:
Tucker
Publisher:
CENGAGE L
Economics For Today
Economics For Today
Economics
ISBN:
9781337613040
Author:
Tucker
Publisher:
Cengage Learning
Survey Of Economics
Survey Of Economics
Economics
ISBN:
9781337111522
Author:
Tucker, Irvin B.
Publisher:
Cengage,
Economics (MindTap Course List)
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning
Macroeconomics
Macroeconomics
Economics
ISBN:
9781337617390
Author:
Roger A. Arnold
Publisher:
Cengage Learning
Exploring Economics
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc