Fiscal policy measures in the current economy.

Question

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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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Students have asked these similar questions

5. Some people find options expensive and use more complex structures to reduce the cost. For example, consider buying a call with a strike of $55 and selling a call with a strike of $60. a. What is the cost of establishing this combined position? b. What is the payoff of the combined position if the market price goes to $60? c. What is the payoff of the combined position if the market price goes to $100?

3. An investor has $1,000 to invest. They believe the price of the underlier will increase to $60 within one year. a. How many shares of stock could they buy with the $1,000 at the current price of $50, and how much would they make if the share price increased to $60? b. How many calls with a strike of $55 could they buy for the same $1,000, and how much would they make if the share price increased to $60? c. How much would they make (or lose) from the stock and from the calls if the share price declined to $40? 4. What is the premium on a call with a strike of $0.01? Why is the premium so close to the $50 share price?

1. We want to examine the comparative statics of the Black Scholes model. Complete the following table using the Excel model from class or another of your choice. Provide the call premium and the put premium for each scenario. Underlier Risk-free Scenario price rate Volatility Time to expiration Strike Call premium Put premium Baseline $50 5% 25% 1 year $55 Higher strike $50 5% 25% 1 year $60 Higher volatility $50 5% 40% 1 year $55 Higher risk free $50 8% 25% 1 year $55 More time $50 5% 25% 2 years $55 2. Look at the baseline scenario. a. What is the probability that the call is exercised in the baseline scenario? b. What is the probability that the put is exercised? c. Explain why the probabilities sum to 1.

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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Chapter 12 Solutions