Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 27, Problem 27.1.2RQ
To determine
Automatic stabilizers.
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Briefly discuss the effects of time lags in relation to fiscal policy, including: a comparison to monetary policy, what the level of fiscal policy will be, and its effect on fiscal policy during recession.
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The hypothetical information in the following table shows what the situation will be in 2016 if the government does not use fiscal policy:
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a. If the government wants to move real GDP to its potential level in 2016, should it use expansionary policy or contractionary policy? In your answer make sure you explain whether the government should be increasing or decreasing government purchases and taxes.b. If the government is successful in moving real GDP to its potential level in 2016, state whether each of the following will be higher, lower or the same as it would have been if they had taken no action: i. Real GDP ii. Potential GDP iii.The inflation rate iv.The unemployment rate.c. Draw a dynamic aggregate demand and aggregate supply graph to illustrate your answer. Make sure that your graph contains LRAS curves for 2015 and 2016; SRAS curves for 2015 and 2016; AD curves for 2015 and 2016, with and without fiscal policy action; and equilibrium real GDP and the…
Chapter 27 Solutions
Economics (7th Edition) (What's New in Economics)
Ch. 27.A - Prob. 1PACh. 27.A - Prob. 3PACh. 27.A - Prob. 4PACh. 27.A - Prob. 5PACh. 27 - Prob. 27.1.1RQCh. 27 - Prob. 27.1.2RQCh. 27 - Prob. 27.1.3RQCh. 27 - Prob. 27.1.4PACh. 27 - Prob. 27.1.5PACh. 27 - Prob. 27.1.6PA
Ch. 27 - Prob. 27.1.7PACh. 27 - Prob. 27.2.1RQCh. 27 - Prob. 27.2.2RQCh. 27 - Prob. 27.2.3PACh. 27 - Prob. 27.2.4PACh. 27 - Prob. 27.2.5PACh. 27 - Prob. 27.2.6PACh. 27 - Prob. 27.2.7PACh. 27 - Prob. 27.2.8PACh. 27 - Prob. 27.3.1RQCh. 27 - Prob. 27.3.2RQCh. 27 - Prob. 27.3.3PACh. 27 - Prob. 27.3.4PACh. 27 - Prob. 27.3.5PACh. 27 - Prob. 27.3.6PACh. 27 - Prob. 27.4.1RQCh. 27 - Prob. 27.4.3RQCh. 27 - Prob. 27.4.4PACh. 27 - Prob. 27.4.5PACh. 27 - Prob. 27.4.6PACh. 27 - Prob. 27.4.7PACh. 27 - Prob. 27.4.8PACh. 27 - Prob. 27.4.9PACh. 27 - Prob. 27.5.1RQCh. 27 - Prob. 27.5.2RQCh. 27 - Prob. 27.5.3PACh. 27 - Prob. 27.5.4PACh. 27 - Prob. 27.5.5PACh. 27 - Prob. 27.5.6PACh. 27 - Prob. 27.5.7PACh. 27 - Prob. 27.6.1RQCh. 27 - Prob. 27.6.2RQCh. 27 - Prob. 27.6.3RQCh. 27 - Prob. 27.6.4RQCh. 27 - Prob. 27.6.5PACh. 27 - Prob. 27.6.6PACh. 27 - Prob. 27.6.7PACh. 27 - Prob. 27.6.9PACh. 27 - Prob. 27.6.10PACh. 27 - Prob. 27.6.11PACh. 27 - Prob. 27.7.1RQCh. 27 - Prob. 27.7.2RQCh. 27 - Prob. 27.7.3RQCh. 27 - Prob. 27.7.4PACh. 27 - Prob. 27.7.5PACh. 27 - Prob. 27.7.7PACh. 27 - Prob. 27.7.8PACh. 27 - Prob. 27.1CTE
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- "Even if there is full information and that wages and prices are fully flexible as what the Classical economists believe, an expansionary fiscal policy can still change the output of the economy" Outline an economic model that explains this possibility.arrow_forwardQuestion 4The Employment Insurance (EI) program is an example of an automatic stabilizer. Use this example to explain how automatic stabilizers reduce the fluctuations in income and unemployment caused by the business cycle. You may use a graph of the business cycle to illustrate. How are deficits and surpluses created differently by discretionary fiscal policy compared with automatic stabilizers? Use graphs to illustrate. Was the government of Canada’s response to COVID-19 in 2020 an example of discretionary fiscal policy or an example of an automatic stabilizer?arrow_forwardDrawing diagrams briefly explain the following scenarios: a. Recessionary gap. b. David Ricardo’s criticism of fiscal policy.arrow_forward
- What is the primary component(s) of GDP that Fiscal Policy is trying to effect?arrow_forwardExplain how the conduct of fiscal policy affects consumption and investment in equilibrium.arrow_forwardBriefly explain how a budget deficit arises and what corresponding action is typically by taken by a government in this type of circumstance.arrow_forward
- Explain fiscal policy and its role in stabilizing economies during recessions.arrow_forwardBUDGET BALANCES (billions of dollars per year) Refer to the "In the News" and the figure to answer two questions IN THE NEWS Fiscal Policy in the Great Depression In 1931 President Herbert Hoover observed, "Business depressions have been recurrent in the life of our country and are but transitory." Rather than proposing fiscal stimulus, Hoover complained that expansion of public works programs had unbalanced the federal budget. In 1932 he proposed cutbacks in government spending and higher taxes. In his view, the "unquestioned balancing of the federal budget... is the first necessity of national stability and is the foundation of further recovery." Franklin Roosevelt shared this view of fiscal policy. He criticized Hoover for not balancing the budget and in 1933 wamed Congress that "all public works must be considered from the point of view of the ability of the government treasury to pay for them." As the accompanying figure shows, the budget deficit persisted throughout the Great…arrow_forwardUse the table to answer the following questions: Public Debt over Time United States France Italy Belgium Australia France Belgium Australia the United States 2001 Debt $3.3 trillion $0.9 trillion $1.5 trillion $0.3 trillion $0.2 trillion According to the table, which country appeared to be in the worst fiscal shape in 2012? Italy GDP $10.2 trillion $1.5 trillion $1.2 trillion $0.3 trillion $0.7 trillion 2011 Debt $12.2 trillion $1.8 trillion $1.7 trillion $0.3 trillion $0.4 trillion GDP $15.0 trillion $2.0 trillion $1.6 trillion $0.4 trillion $1.4 trillionarrow_forward
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