Fiscal policy measures in the current economy.

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Answer 1

Question

Chapter 12, Problem 1CQ

To determine

Fiscal policy measures in the current economy.

Expert Solution & Answer

Explanation of Solution

For discretionary fiscal policy, there will be a problem of appropriate timing which may fail to provide desired result. Hence, the automatic stabilizers like unemployment compensation, corporate profit tax, and progressive income tax will be suitable fiscal policy measure for the next twelve months.

When the economy is in recession, the automatic stabilizers increases the government expenditure (spending) and reduces taxes. Alternatively, when there is an economic boom, these stabilizers reduce the government expenditure (spending) and increase the taxes.

These automatic stabilizers enlarge the budget deficit of the government. This increases the aggregate demand and it will increase the employment rate, real GDP, and balanced inflation rate. Keynes believed in counter-cyclical fiscal policy to offset the fluctuations in the economy, rather than the balanced budget.

Economics Concept Introduction

Discretionary fiscal policy: Discretionary fiscal policy refers to the change in government spending and taxes in order to achieve economic goals.

Automatic stabilizers: Automatic stabilizers are changes in fiscal policy that varies the aggregate demand during fluctuations in business cycle without the need for explicit action by policymakers.

Countercyclical fiscal policy: counter cyclical fiscal policy is an automatic action which operates in opposite direction from the fluctuations in business cycle through changes in government spending and tax revenue

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Problem 3 You are given the following demand for European luxury automobiles: Q=1,000 P-0.5.2/1.6 where P-Price of European luxury cars PA = Price of American luxury cars P, Price of Japanese luxury cars I= Annual income of car buyers Assume that each of the coefficients is statistically significant (i.e., that they passed the t-test). On the basis of the information given, answer the following questions 1. Comment on the degree of substitutability between European and American luxury cars and between European and Japanese luxury cars. Explain some possible reasons for the results in the equation. 2. Comment on the coefficient for the income variable. Is this result what you would expect? Explain. 3. Comment on the coefficient of the European car price variable. Is that what you would expect? Explain.

Problem 2: A manufacturer of computer workstations gathered average monthly sales figures from its 56 branch offices and dealerships across the country and estimated the following demand for its product: Q=+15,000-2.80P+150A+0.3P+0.35Pm+0.2Pc (5,234) (1.29) (175) (0.12) (0.17) (0.13) R²=0.68 SER 786 F=21.25 The variables and their assumed values are P = Price of basic model = 7,000 Q==Quantity A = Advertising expenditures (in thousands) = 52 P = Average price of a personal computer = 4,000 P. Average price of a minicomputer = 15,000 Pe Average price of a leading competitor's workstation = 8,000 1. Compute the elasticities for each variable. On this basis, discuss the relative impact that each variable has on the demand. What implications do these results have for the firm's marketing and pricing policies? 2. Conduct a t-test for the statistical significance of each variable. In each case, state whether a one-tail or two-tail test is required. What difference, if any, does it make to…

Answer 2

Question

Chapter 12, Problem 1CQ

To determine

Fiscal policy measures in the current economy.

Expert Solution & Answer

Explanation of Solution

For discretionary fiscal policy, there will be a problem of appropriate timing which may fail to provide desired result. Hence, the automatic stabilizers like unemployment compensation, corporate profit tax, and progressive income tax will be suitable fiscal policy measure for the next twelve months.

When the economy is in recession, the automatic stabilizers increases the government expenditure (spending) and reduces taxes. Alternatively, when there is an economic boom, these stabilizers reduce the government expenditure (spending) and increase the taxes.

These automatic stabilizers enlarge the budget deficit of the government. This increases the aggregate demand and it will increase the employment rate, real GDP, and balanced inflation rate. Keynes believed in counter-cyclical fiscal policy to offset the fluctuations in the economy, rather than the balanced budget.

Economics Concept Introduction

Discretionary fiscal policy: Discretionary fiscal policy refers to the change in government spending and taxes in order to achieve economic goals.

Automatic stabilizers: Automatic stabilizers are changes in fiscal policy that varies the aggregate demand during fluctuations in business cycle without the need for explicit action by policymakers.

Countercyclical fiscal policy: counter cyclical fiscal policy is an automatic action which operates in opposite direction from the fluctuations in business cycle through changes in government spending and tax revenue

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Answer 3

Question

Chapter 12, Problem 1CQ

To determine

Fiscal policy measures in the current economy.

Expert Solution & Answer

Explanation of Solution

For discretionary fiscal policy, there will be a problem of appropriate timing which may fail to provide desired result. Hence, the automatic stabilizers like unemployment compensation, corporate profit tax, and progressive income tax will be suitable fiscal policy measure for the next twelve months.

When the economy is in recession, the automatic stabilizers increases the government expenditure (spending) and reduces taxes. Alternatively, when there is an economic boom, these stabilizers reduce the government expenditure (spending) and increase the taxes.

These automatic stabilizers enlarge the budget deficit of the government. This increases the aggregate demand and it will increase the employment rate, real GDP, and balanced inflation rate. Keynes believed in counter-cyclical fiscal policy to offset the fluctuations in the economy, rather than the balanced budget.

Economics Concept Introduction

Discretionary fiscal policy: Discretionary fiscal policy refers to the change in government spending and taxes in order to achieve economic goals.

Automatic stabilizers: Automatic stabilizers are changes in fiscal policy that varies the aggregate demand during fluctuations in business cycle without the need for explicit action by policymakers.

Countercyclical fiscal policy: counter cyclical fiscal policy is an automatic action which operates in opposite direction from the fluctuations in business cycle through changes in government spending and tax revenue

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Answer 4

Question

Chapter 12, Problem 1CQ

To determine

Fiscal policy measures in the current economy.

Expert Solution & Answer

Explanation of Solution

For discretionary fiscal policy, there will be a problem of appropriate timing which may fail to provide desired result. Hence, the automatic stabilizers like unemployment compensation, corporate profit tax, and progressive income tax will be suitable fiscal policy measure for the next twelve months.

When the economy is in recession, the automatic stabilizers increases the government expenditure (spending) and reduces taxes. Alternatively, when there is an economic boom, these stabilizers reduce the government expenditure (spending) and increase the taxes.

These automatic stabilizers enlarge the budget deficit of the government. This increases the aggregate demand and it will increase the employment rate, real GDP, and balanced inflation rate. Keynes believed in counter-cyclical fiscal policy to offset the fluctuations in the economy, rather than the balanced budget.

Economics Concept Introduction

Discretionary fiscal policy: Discretionary fiscal policy refers to the change in government spending and taxes in order to achieve economic goals.

Automatic stabilizers: Automatic stabilizers are changes in fiscal policy that varies the aggregate demand during fluctuations in business cycle without the need for explicit action by policymakers.

Countercyclical fiscal policy: counter cyclical fiscal policy is an automatic action which operates in opposite direction from the fluctuations in business cycle through changes in government spending and tax revenue

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Answer 5

Chapter 12, Problem 1CQ

To determine

Fiscal policy measures in the current economy.

Expert Solution & Answer

Explanation of Solution

For discretionary fiscal policy, there will be a problem of appropriate timing which may fail to provide desired result. Hence, the automatic stabilizers like unemployment compensation, corporate profit tax, and progressive income tax will be suitable fiscal policy measure for the next twelve months.

When the economy is in recession, the automatic stabilizers increases the government expenditure (spending) and reduces taxes. Alternatively, when there is an economic boom, these stabilizers reduce the government expenditure (spending) and increase the taxes.

These automatic stabilizers enlarge the budget deficit of the government. This increases the aggregate demand and it will increase the employment rate, real GDP, and balanced inflation rate. Keynes believed in counter-cyclical fiscal policy to offset the fluctuations in the economy, rather than the balanced budget.

Economics Concept Introduction

Discretionary fiscal policy: Discretionary fiscal policy refers to the change in government spending and taxes in order to achieve economic goals.

Automatic stabilizers: Automatic stabilizers are changes in fiscal policy that varies the aggregate demand during fluctuations in business cycle without the need for explicit action by policymakers.

Countercyclical fiscal policy: counter cyclical fiscal policy is an automatic action which operates in opposite direction from the fluctuations in business cycle through changes in government spending and tax revenue

Answer 6

Chapter 12, Problem 1CQ

To determine

Fiscal policy measures in the current economy.

Expert Solution & Answer

Explanation of Solution

For discretionary fiscal policy, there will be a problem of appropriate timing which may fail to provide desired result. Hence, the automatic stabilizers like unemployment compensation, corporate profit tax, and progressive income tax will be suitable fiscal policy measure for the next twelve months.

When the economy is in recession, the automatic stabilizers increases the government expenditure (spending) and reduces taxes. Alternatively, when there is an economic boom, these stabilizers reduce the government expenditure (spending) and increase the taxes.

These automatic stabilizers enlarge the budget deficit of the government. This increases the aggregate demand and it will increase the employment rate, real GDP, and balanced inflation rate. Keynes believed in counter-cyclical fiscal policy to offset the fluctuations in the economy, rather than the balanced budget.

Economics Concept Introduction

Discretionary fiscal policy: Discretionary fiscal policy refers to the change in government spending and taxes in order to achieve economic goals.

Automatic stabilizers: Automatic stabilizers are changes in fiscal policy that varies the aggregate demand during fluctuations in business cycle without the need for explicit action by policymakers.

Countercyclical fiscal policy: counter cyclical fiscal policy is an automatic action which operates in opposite direction from the fluctuations in business cycle through changes in government spending and tax revenue

Answer 7

Chapter 12, Problem 1CQ

To determine

Fiscal policy measures in the current economy.

Answer 8

Expert Solution & Answer

Explanation of Solution

For discretionary fiscal policy, there will be a problem of appropriate timing which may fail to provide desired result. Hence, the automatic stabilizers like unemployment compensation, corporate profit tax, and progressive income tax will be suitable fiscal policy measure for the next twelve months.

When the economy is in recession, the automatic stabilizers increases the government expenditure (spending) and reduces taxes. Alternatively, when there is an economic boom, these stabilizers reduce the government expenditure (spending) and increase the taxes.

These automatic stabilizers enlarge the budget deficit of the government. This increases the aggregate demand and it will increase the employment rate, real GDP, and balanced inflation rate. Keynes believed in counter-cyclical fiscal policy to offset the fluctuations in the economy, rather than the balanced budget.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Economics Concept Introduction

Discretionary fiscal policy: Discretionary fiscal policy refers to the change in government spending and taxes in order to achieve economic goals.

Automatic stabilizers: Automatic stabilizers are changes in fiscal policy that varies the aggregate demand during fluctuations in business cycle without the need for explicit action by policymakers.

Countercyclical fiscal policy: counter cyclical fiscal policy is an automatic action which operates in opposite direction from the fluctuations in business cycle through changes in government spending and tax revenue

Answer 12

Ch. 12 - Prob. 1CQ Ch. 12 - Prob. 2CQ Ch. 12 - Prob. 3CQ Ch. 12 - Prob. 4CQ Ch. 12 - Prob. 5CQ Ch. 12 - Prob. 6CQ Ch. 12 - Prob. 7CQ Ch. 12 - Prob. 8CQ Ch. 12 - Prob. 9CQ Ch. 12 - Prob. 10CQ

Fiscal policy measures in the current economy.

Fiscal policy measures in the current economy.

Explanation of Solution

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