Economics: Principles and Policy (MindTap Course List)
13th Edition
ISBN: 9781305280595
Author: William J. Baumol, Alan S. Blinder
Publisher: Cengage Learning
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Chapter 28.B, Problem 4TY
To determine
The prevailing level of GDP.
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Write 4-5 sentences.
COURSE: MACROECONOMICS - FISCAL BALANCE
The government of country X, faced with a fiscal deficit, proposes an increase in public spending (G) but which further increases the country's public debt. To justify this action the president argues that they are seeking to boost the economy which will increase the country's GDP allowing to collect significantly more money than initially spent, finally improving the situation of the fiscal coffers. Is this statement correct? Does the government have knowledge of economics?
An economy is in long-run macroeconomic equilibrium when each of the following aggregate demand shocks occurs. What kind of gap - inflationary or recessionary - will the economy face after the shock, and what type of fiscal policies would help move the economy back to potential output? How would your recommended fiscal policy shift the aggregate demandcurve? (Note: you do not need to draw anything).(a) A stock market boom increases the value of stocks held by households.(b) Firms come to believe that a recession in the near future is likely.(c) Anticipating the possibility of war, the government increases its purchases of military equipment.(d) The quantity of money in the economy declines and interest rates increase.
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Economics: Principles and Policy (MindTap Course List)
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- part C D i need in words not handwritten solution pleasearrow_forwardWhat must take place for the government to run deficits without any crowding out?arrow_forward(a) The hypothetical information in the following table shows what the situation will be in if the government of Singapore does not use fiscal policy: Year 2020 2021 Potential GDP S$20.1 billion Real GDP S$20.1 billion S$20.1 billion Price Level 110.0 S$20.75 billion 120.5 If the government of Singapore wants to keep its real GDP at its potential level in 2021, determine whether an expansionary or contractionary policy should be applied. i. ii. If government of Singapore is successful in keeping real GDP at its potential level in 2021, discuss what would happen to the level of real GDP, potential real GDP, inflation rate and unemployment rate. iii. Draw an aggregate demand and aggregate supply diagram to illustrate the impacts and changes in (ii). Be certain to include L.RAS curves for 2020 and 2021; SRAS curves for 2020 and 2021; AD curves for 2020 and 2021, with and without fiscal policy action; and equilibrium real GDP and the price level in 2021, with and without fiscal policy.arrow_forward
- Question: "In a hypothetical economy, the government implements a fiscal stimulus package by increasing public spending on infrastructure projects. At the same time, there is a significant rise in consumer savings rates. Discuss the potential short-term and long- term impacts of these simultaneous events on the economy's aggregate demand, interest rates, and inflation. Consider how these changes might affect the effectiveness of the fiscal stimulus in achieving its intended economic objectives."arrow_forward(b). Suppose an economy is in recession with historically high unemployment. Using the Keynesian income-expenditure model, explain how an expansionary fiscal policy, involving a reduction in the marginal tax rate can reduce the unemployment rate. What does your explanation suggest about using the overall budget balance as an indicator of the stance of fiscal policy?arrow_forward3 Fiscal Policy Keynes recommended that when aggregate demand slumped causing a recession or depression in output and a loss of jobs, the government should step in to increase spending. (a) Following the collapse of systemically important banks in 2008, were the G-20 group of countries right in early 2009 to coordinate their fiscal policies and increase government spending? How would you distinguish the effect of such a policy on (i) confidence (ii) cut back in investment spending by companies (iii) averting a global meltdown or severe economic depression such as the 1930Ac€?c? (b)If you were in 2015 for one day the Minister of Finance in Italy, facing deflation, falling output, rising unemployment and a growing national debt relative to income what kind of fiscal polices would you pursue? Would you increase or cut government expenditures or raise taxes? Would you recommend structural reform in the labour market to complement your policies? Would you suggest, as all three of the…arrow_forward
- 21. Which of the following defines a fiscal policy? a.Commercial bank policies to stabilize domestic output, employment, and the price level b.World Bank policies to stabilize domestic output, employment, and the price level c.Central Bank policies to stabilize domestic output, employment, and the price level d.Government spending and taxes to stabilize domestic output, employment, and the price levelarrow_forwardQuestion: Which of the following is an example of a fiscal policy that has no inside lag? a- A reduction in interest rates. b- A reduction in the age at which people become eligible for retirement benefits. c. An ongoing unemployment insurance program. d. A decrease in income tax rates. e. An increase in goverment spending for job trainingarrow_forwardQuestion 1 Considering the recent expenditure of governments across the world in providing vaccines free of cost to their respective citizens, we assume that government is facing a temporary budget deficit. Based on these circumstances and the additional difficulties due to the ongoing pandemic, please answer each of the following questions related to the country you have or will be speaking about during your presentation. a. Please write the equation for GDP to reflect a possible budget deficit. Now, based on the above situation, explain in your own words, how will the government for the country of your choice expect to address the situation or has already planned to reduce the budget deficit. b. Assume you are an investor in your country, how will the choice for investment change due to the expectation of government policy in your response for part (a) above? Explain with the help of a diagram as you feel appropriate.arrow_forward
- 40. Which of these would help a government fight a recession? raising taxes cutting taxes cutting spending paying down the national debtarrow_forwardASAParrow_forwardplease answer the following question: 1. Suppose an economy is slowing and more and more people are losing their jobs and, therefore, paying less income taxes. If policy makers try to avoid a budget deficit by raising taxe rates, this would probablyA) help pull the economy out of a depression.B) make the economic slowdown worse.C) increase inflation.arrow_forward
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