Gross Domestic Product (GDP): It is defined as the value of output which is produced inside the border of the country in a given interval of time. Fiscal Policy: It includes government expenditure and taxes. When the government expenditure is increased or taxes are decreased then AD curve shifts rightward and vice versa. Monetary Policy : It includes money supply changes. When the money supply increases AD curve shifts rightward and vice versa. Liquidity Trap: It is a situation in an economy when the interest rate is very low, almost equal to zero so; the monetary policy loses its effectiveness. People prefer to keep money in the form of cash rather than bond or deposits.

Question

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Answer 1

Question

Chapter 18, Problem 1P

To determine

Concept Introduction:

Gross Domestic Product (GDP): It is defined as the value of output which is produced inside the border of the country in a given interval of time.

Fiscal Policy: It includes government expenditure and taxes. When the government expenditure is increased or taxes are decreased then AD curve shifts rightward and vice versa.

Monetary Policy: It includes money supply changes. When the money supply increases AD curve shifts rightward and vice versa.

Liquidity Trap: It is a situation in an economy when the interest rate is very low, almost equal to zero so; the monetary policy loses its effectiveness. People prefer to keep money in the form of cash rather than bond or deposits.

Expert Solution & Answer

Answer to Problem 1P

a. Policy used by the policy makers in Japan to promote growth.

From the data, it is concluded that the policy maker used expansionary monetary policy as well as fiscal policy.

Short term interest rate has decreased from 7.38% in 1991 to 0.04% in 2003. This indicates that the policy used is expansionary monetary policy.

Explanation of Solution

Government debt as a percentage of GDP rose from 64.8% in 1991 to 157.5% in 2003. And the government deficit has also increased from −1.81% to 7.67%.

This indicates the use of expansionary fiscal policy by the policy makers.Thus, the policy makers used expansionary fiscal and monetary policy to promote growth.

b. Situation of liquidity traps.

It is a situation of liquidity trap in an economy. When the interest rate is very low, almost equal to zero, the monetary policy loses its effectiveness.

People prefer to keep money in the form of cash rather than bond or deposits.Thus, in the case of liquidity trap, monetary policy is ineffective.

Monetary policy is ineffective because the interest rate is very low. However, in such cases, fiscal policy is fully effective as there is no crowding out due to an increase in interest rates.

The change in expenditure or tax is reflected as the change in real GDP.

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Answer 2

Question

Chapter 18, Problem 1P

To determine

Concept Introduction:

Gross Domestic Product (GDP): It is defined as the value of output which is produced inside the border of the country in a given interval of time.

Fiscal Policy: It includes government expenditure and taxes. When the government expenditure is increased or taxes are decreased then AD curve shifts rightward and vice versa.

Monetary Policy: It includes money supply changes. When the money supply increases AD curve shifts rightward and vice versa.

Liquidity Trap: It is a situation in an economy when the interest rate is very low, almost equal to zero so; the monetary policy loses its effectiveness. People prefer to keep money in the form of cash rather than bond or deposits.

Expert Solution & Answer

Answer to Problem 1P

a. Policy used by the policy makers in Japan to promote growth.

From the data, it is concluded that the policy maker used expansionary monetary policy as well as fiscal policy.

Short term interest rate has decreased from 7.38% in 1991 to 0.04% in 2003. This indicates that the policy used is expansionary monetary policy.

Explanation of Solution

Government debt as a percentage of GDP rose from 64.8% in 1991 to 157.5% in 2003. And the government deficit has also increased from −1.81% to 7.67%.

This indicates the use of expansionary fiscal policy by the policy makers.Thus, the policy makers used expansionary fiscal and monetary policy to promote growth.

b. Situation of liquidity traps.

It is a situation of liquidity trap in an economy. When the interest rate is very low, almost equal to zero, the monetary policy loses its effectiveness.

People prefer to keep money in the form of cash rather than bond or deposits.Thus, in the case of liquidity trap, monetary policy is ineffective.

Monetary policy is ineffective because the interest rate is very low. However, in such cases, fiscal policy is fully effective as there is no crowding out due to an increase in interest rates.

The change in expenditure or tax is reflected as the change in real GDP.

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Answer 3

Question

Chapter 18, Problem 1P

To determine

Concept Introduction:

Gross Domestic Product (GDP): It is defined as the value of output which is produced inside the border of the country in a given interval of time.

Fiscal Policy: It includes government expenditure and taxes. When the government expenditure is increased or taxes are decreased then AD curve shifts rightward and vice versa.

Monetary Policy: It includes money supply changes. When the money supply increases AD curve shifts rightward and vice versa.

Liquidity Trap: It is a situation in an economy when the interest rate is very low, almost equal to zero so; the monetary policy loses its effectiveness. People prefer to keep money in the form of cash rather than bond or deposits.

Expert Solution & Answer

Answer to Problem 1P

a. Policy used by the policy makers in Japan to promote growth.

From the data, it is concluded that the policy maker used expansionary monetary policy as well as fiscal policy.

Short term interest rate has decreased from 7.38% in 1991 to 0.04% in 2003. This indicates that the policy used is expansionary monetary policy.

Explanation of Solution

Government debt as a percentage of GDP rose from 64.8% in 1991 to 157.5% in 2003. And the government deficit has also increased from −1.81% to 7.67%.

This indicates the use of expansionary fiscal policy by the policy makers.Thus, the policy makers used expansionary fiscal and monetary policy to promote growth.

b. Situation of liquidity traps.

It is a situation of liquidity trap in an economy. When the interest rate is very low, almost equal to zero, the monetary policy loses its effectiveness.

People prefer to keep money in the form of cash rather than bond or deposits.Thus, in the case of liquidity trap, monetary policy is ineffective.

Monetary policy is ineffective because the interest rate is very low. However, in such cases, fiscal policy is fully effective as there is no crowding out due to an increase in interest rates.

The change in expenditure or tax is reflected as the change in real GDP.

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Answer 4

Question

Chapter 18, Problem 1P

To determine

Concept Introduction:

Gross Domestic Product (GDP): It is defined as the value of output which is produced inside the border of the country in a given interval of time.

Fiscal Policy: It includes government expenditure and taxes. When the government expenditure is increased or taxes are decreased then AD curve shifts rightward and vice versa.

Monetary Policy: It includes money supply changes. When the money supply increases AD curve shifts rightward and vice versa.

Liquidity Trap: It is a situation in an economy when the interest rate is very low, almost equal to zero so; the monetary policy loses its effectiveness. People prefer to keep money in the form of cash rather than bond or deposits.

Expert Solution & Answer

Answer to Problem 1P

a. Policy used by the policy makers in Japan to promote growth.

From the data, it is concluded that the policy maker used expansionary monetary policy as well as fiscal policy.

Short term interest rate has decreased from 7.38% in 1991 to 0.04% in 2003. This indicates that the policy used is expansionary monetary policy.

Explanation of Solution

Government debt as a percentage of GDP rose from 64.8% in 1991 to 157.5% in 2003. And the government deficit has also increased from −1.81% to 7.67%.

This indicates the use of expansionary fiscal policy by the policy makers.Thus, the policy makers used expansionary fiscal and monetary policy to promote growth.

b. Situation of liquidity traps.

It is a situation of liquidity trap in an economy. When the interest rate is very low, almost equal to zero, the monetary policy loses its effectiveness.

People prefer to keep money in the form of cash rather than bond or deposits.Thus, in the case of liquidity trap, monetary policy is ineffective.

Monetary policy is ineffective because the interest rate is very low. However, in such cases, fiscal policy is fully effective as there is no crowding out due to an increase in interest rates.

The change in expenditure or tax is reflected as the change in real GDP.

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Answer 5

Chapter 18, Problem 1P

To determine

Concept Introduction:

Gross Domestic Product (GDP): It is defined as the value of output which is produced inside the border of the country in a given interval of time.

Fiscal Policy: It includes government expenditure and taxes. When the government expenditure is increased or taxes are decreased then AD curve shifts rightward and vice versa.

Monetary Policy: It includes money supply changes. When the money supply increases AD curve shifts rightward and vice versa.

Liquidity Trap: It is a situation in an economy when the interest rate is very low, almost equal to zero so; the monetary policy loses its effectiveness. People prefer to keep money in the form of cash rather than bond or deposits.

Expert Solution & Answer

Answer to Problem 1P

a. Policy used by the policy makers in Japan to promote growth.

From the data, it is concluded that the policy maker used expansionary monetary policy as well as fiscal policy.

Short term interest rate has decreased from 7.38% in 1991 to 0.04% in 2003. This indicates that the policy used is expansionary monetary policy.

Explanation of Solution

Government debt as a percentage of GDP rose from 64.8% in 1991 to 157.5% in 2003. And the government deficit has also increased from −1.81% to 7.67%.

This indicates the use of expansionary fiscal policy by the policy makers.Thus, the policy makers used expansionary fiscal and monetary policy to promote growth.

b. Situation of liquidity traps.

It is a situation of liquidity trap in an economy. When the interest rate is very low, almost equal to zero, the monetary policy loses its effectiveness.

People prefer to keep money in the form of cash rather than bond or deposits.Thus, in the case of liquidity trap, monetary policy is ineffective.

Monetary policy is ineffective because the interest rate is very low. However, in such cases, fiscal policy is fully effective as there is no crowding out due to an increase in interest rates.

The change in expenditure or tax is reflected as the change in real GDP.

Answer 6

Chapter 18, Problem 1P

To determine

Concept Introduction:

Gross Domestic Product (GDP): It is defined as the value of output which is produced inside the border of the country in a given interval of time.

Fiscal Policy: It includes government expenditure and taxes. When the government expenditure is increased or taxes are decreased then AD curve shifts rightward and vice versa.

Monetary Policy: It includes money supply changes. When the money supply increases AD curve shifts rightward and vice versa.

Liquidity Trap: It is a situation in an economy when the interest rate is very low, almost equal to zero so; the monetary policy loses its effectiveness. People prefer to keep money in the form of cash rather than bond or deposits.

Expert Solution & Answer

Answer to Problem 1P

a. Policy used by the policy makers in Japan to promote growth.

From the data, it is concluded that the policy maker used expansionary monetary policy as well as fiscal policy.

Short term interest rate has decreased from 7.38% in 1991 to 0.04% in 2003. This indicates that the policy used is expansionary monetary policy.

Explanation of Solution

Government debt as a percentage of GDP rose from 64.8% in 1991 to 157.5% in 2003. And the government deficit has also increased from −1.81% to 7.67%.

This indicates the use of expansionary fiscal policy by the policy makers.Thus, the policy makers used expansionary fiscal and monetary policy to promote growth.

b. Situation of liquidity traps.

It is a situation of liquidity trap in an economy. When the interest rate is very low, almost equal to zero, the monetary policy loses its effectiveness.

People prefer to keep money in the form of cash rather than bond or deposits.Thus, in the case of liquidity trap, monetary policy is ineffective.

Monetary policy is ineffective because the interest rate is very low. However, in such cases, fiscal policy is fully effective as there is no crowding out due to an increase in interest rates.

The change in expenditure or tax is reflected as the change in real GDP.

Answer 7

Chapter 18, Problem 1P

To determine

Concept Introduction:

Gross Domestic Product (GDP): It is defined as the value of output which is produced inside the border of the country in a given interval of time.

Fiscal Policy: It includes government expenditure and taxes. When the government expenditure is increased or taxes are decreased then AD curve shifts rightward and vice versa.

Monetary Policy: It includes money supply changes. When the money supply increases AD curve shifts rightward and vice versa.

Liquidity Trap: It is a situation in an economy when the interest rate is very low, almost equal to zero so; the monetary policy loses its effectiveness. People prefer to keep money in the form of cash rather than bond or deposits.

Answer 8

Expert Solution & Answer

Answer to Problem 1P

a. Policy used by the policy makers in Japan to promote growth.

From the data, it is concluded that the policy maker used expansionary monetary policy as well as fiscal policy.

Short term interest rate has decreased from 7.38% in 1991 to 0.04% in 2003. This indicates that the policy used is expansionary monetary policy.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Government debt as a percentage of GDP rose from 64.8% in 1991 to 157.5% in 2003. And the government deficit has also increased from −1.81% to 7.67%.

This indicates the use of expansionary fiscal policy by the policy makers.Thus, the policy makers used expansionary fiscal and monetary policy to promote growth.

b. Situation of liquidity traps.

It is a situation of liquidity trap in an economy. When the interest rate is very low, almost equal to zero, the monetary policy loses its effectiveness.

People prefer to keep money in the form of cash rather than bond or deposits.Thus, in the case of liquidity trap, monetary policy is ineffective.

Monetary policy is ineffective because the interest rate is very low. However, in such cases, fiscal policy is fully effective as there is no crowding out due to an increase in interest rates.

The change in expenditure or tax is reflected as the change in real GDP.

Answer 12

Ch. 18 - Prob. 1P Ch. 18 - Prob. 2P Ch. 18 - Prob. 3P Ch. 18 - Prob. 4P Ch. 18 - Prob. 5P Ch. 18 - Prob. 6P Ch. 18 - Prob. 7P Ch. 18 - Prob. 8P Ch. 18 - Prob. 9P

Answer to Problem 1P

Explanation of Solution

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Chapter 18 Solutions