Economics
Economics
5th Edition
ISBN: 9781319066604
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
Question
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Chapter 28, Problem 1BCQ
To determine

Difference in Solana project reaction to that of other projects of the government such as roads and schools and valuate the fiscal stimulus project.

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 and also to influence the tax rate.

Expert Solution & Answer
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Explanation of Solution

  • The S plant can produce power even when there is no sun because this plant collects heat when sun is present and stores the heat and finally converts it 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 provide loans.
  • 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. Hence, this investment will be considered even if fiscal deficit is present.
  • Therefore, from the given case it can be concluded that the work, which is to be performed by S, is done in a very appropriate manner as it has generated employment.

Conclusion:

Thus, the political reaction is unpleasant for this project.

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