Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506756
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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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
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
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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Bill’s father read that each year a car’s value declines by 10%. He also read that a new car’s value declines by 12% as it is driven off the dealer’s lot. Maintenance costs and the costs of “car problems” are only $200 per year during the 2-year warranty period. Then they jump to $750 per year, with an annual increase of $500 per year.Bill’s dad wants to keep his annual cost of car ownership low. The car he prefers cost $30,000 new, and he uses an interest rate of 8%. For this car, the new vehicle warranty is transferrable.(a) If he buys the car new, what is the minimum cost life? What is the minimum EUAC?(b) If he buys the car after it is 2 years old, what is the minimum cost life? What is the minimum EUAC?(c) If he buys the car after it is 4 years old, what is the minimum cost life? What is the minimum EUAC?(d) If he buys the car after it is 6 years old, what is the minimum cost life? What is the minimum EUAC?(e) What strategy do you recommend? Why?
Please show each step and formula,…
Chapter 12 Solutions
Macroeconomics: Private and Public Choice (MindTap Course List)
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