You are a member of the president's Council of Economic Advisers for the country of Manulo. Currently the economy of Manulo is feeling the impacts of the crisis in the nation of Zedland, a major trade partner. Manulo's GDP is currently at $300b and is estimates show that Manulo's economy has the capacity to produce $360b. As a nation Manulo has a Marginal Propensity to Save of 10%, has zero national debt, and its most recent government budget was balanced. Prepare a brief report that answers the following questions: 1. Based on what you explained previously (scenario 4) about short run vs long equilibrium, the president favors immediate action, and wants you put together a fiscal policy response. Which fiscal policy action would you recommend (expansionary or contractionary)? Explain your rationale with words. 2. The president wants to use government spending, rather than taxes, to close the output gap in the economy. The output gap refers to the difference between the economy's potential output capacity and its actual current output. What is your recommendation? Increase or decrease government spending and by how much? Explain your rationale with numbers. 3. Based on the policy action you are recommending, what would be the impact on the budget and national debt in the country of Manulo? Explain your rationale with words. 4. Thinking outside of your role as an economic advisor to the president, what is your take on fiscal policy? Do you favor it? Are you against? In your view, what are the pros and cons? Explain your rationale.
You are a member of the president's Council of Economic Advisers for the country of Manulo. Currently the economy of Manulo is feeling the impacts of the crisis in the nation of Zedland, a major trade partner. Manulo's GDP is currently at $300b and is estimates show that Manulo's economy has the capacity to produce $360b. As a nation Manulo has a Marginal Propensity to Save of 10%, has zero national debt, and its most recent government budget was balanced. Prepare a brief report that answers the following questions: 1. Based on what you explained previously (scenario 4) about short run vs long equilibrium, the president favors immediate action, and wants you put together a fiscal policy response. Which fiscal policy action would you recommend (expansionary or contractionary)? Explain your rationale with words. 2. The president wants to use government spending, rather than taxes, to close the output gap in the economy. The output gap refers to the difference between the economy's potential output capacity and its actual current output. What is your recommendation? Increase or decrease government spending and by how much? Explain your rationale with numbers. 3. Based on the policy action you are recommending, what would be the impact on the budget and national debt in the country of Manulo? Explain your rationale with words. 4. Thinking outside of your role as an economic advisor to the president, what is your take on fiscal policy? Do you favor it? Are you against? In your view, what are the pros and cons? Explain your rationale.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Scenario
You are a member of the president's Council of Economic Advisers for the country of Manulo. Currently the
economy of Manulo is feeling the impacts of the crisis in the nation of Zedland, a major trade partner.
Manulo's GDP is currently at $300b and is estimates show that Manulo's economy has the capacity to
produce $360b. As a nation Manulo has a Marginal Propensity to Save of 10%, has zero national debt, and
its most recent government budget was balanced. Prepare a brief report that answers the following
questions:
1.
Based on what you explained previously (scenario 4) about short run vs long equilibrium, the president
favors immediate action, and wants you put together a fiscal policy response. Which fiscal policy action
would you recommend (expansionary or contractionary)? Explain your rationale with words.
2. The president wants to use government spending, rather than taxes, to close the output gap in the
economy. The output gap refers to the difference between the economy's potential output capacity and
its actual current output. What is your recommendation? Increase or decrease government spending and
by how much? Explain your rationale with numbers.
3.
Based on the policy action you are recommending, what would be the impact on the budget and national
debt in the country of Manulo? Explain your rationale with words.
4.
Thinking outside of your role as an economic advisor to the president, what is your take on fiscal policy?
Do you favor it? Are you against? In your view, what are the pros and cons? Explain your rationale.
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