Macroeconomics
Macroeconomics
4th Edition
ISBN: 9781464110375
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
Question
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Chapter 13, Problem 1QFT
To determine

Concept Introduction:

Fiscal Policy:

It is a measure taken by the government to influence the economy of any nation. It is done by the government to adjust the spending level of the economy also influence the tax rate.

Political reaction and method to assess value of a fiscal stimulus project.

Expert Solution & Answer
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Explanation of Solution

The political reaction is unpleasant for this project.

  • The S plant can produce power even when there is no sun because this plant collects the heat when sun is present and stored heat is finally converted into electricity when it is required. This process is done with the help of mirrors.
  • With the rise in demand for electricity, the importance of plant is increasing, but the political reaction is unpleasant for this project as it is proved very difficult to invest in this project as many cities seems to be against the ones who provides loan.
  • The government subsidies and the government policies will tell whether the decision of setting the plant is valid or not. The investment on the road and school project is desired. Therefore, this investment will be considered even if fiscal deficit is present.
  • Therefore, from the case it can be concluded that the work, which is to be performed by S is done in very appropriate manner, as it have even generated employment.

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