Gross Domestic Product (GDP): It is defined as the value of output which is produced inside the border of a country in the given interval of time. Fiscal policy: It includes government expenditure and taxes. When government expenditure is increased or taxes are decreased then the AD curve shifts rightward and vice versa. Monetary policy : It includes money supply changes. When 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

Want to see more full solutions like this?

Answer 1

Question

Chapter 32, 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 a country in the given interval of time.

Fiscal policy:

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

Monetary policy:

It includes money supply changes. When 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

Explanation of Solution

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

From the data it is concluded that policy maker used expansionary monetary 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.

Government debt as percentage of the GDP rose from 64.8% in 1991 to 157.5% in 2003. And the government deficit has also increased from to 7.67%. This indicates the use of expansionary fiscal policy by the policy makers.

To determine

Concept Introduction:

Gross Domestic Product (GDP):

It is defined as the value of output which is produced inside the border of a country in the given interval of time.

Fiscal policy:

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

Monetary policy:

It includes money supply changes. When 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

Explanation of Solution

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.

Monetary policy is ineffective because the interest rate is very low. However, in such a case fiscal policy is fully effective as there is no crowding out due to increase in interest rate. The change in expenditure or tax is reflected as the change in the real GDP.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Consider an economy that exhibits both population growth (L grows at rate n) and technological progress (A grows at rate a) described by the production function, Y = F(K, AL) = Ka (AL)¹-α Here K is capital and Y is output. (a) Show that this production function exhibits constant returns to scale. [2 marks] (b) What is the per-effective-worker production function, y = f(k), (where y = Y/AL k K/AL)? (Show your working.) [2 marks] (c) Find expressions for the steady-state capital-output ratio, capital stock per effective worker, and output per effective worker, as a function of the saving rate (s), the depreciation rate (8), the population growth rate (n), the rate of technological progress (a), and the coefficient a. (You may assume the condition that capital per effective worker evolves according to Ak = sf (k) - (a+n+8)k.) [5 marks] (d) Show that at the Golden Rule steady state the saving rate for this economy is equal to the parameter a. [6 marks]

A firm faces the following production function, Y = AKα L¹-a (1) Here Y is output, K is capital, L is fixed labour, and A is a measure of technology. The firm uses an optimal amount of capital determined by the condition, MPK = r +8 (2) Where MPK is the marginal productivity of capital, r is the real interest rate, and ♪ is the depreciation rate. (a) Using equations (1) and (2) find an expression for K*, the optimal amount of capital the firm should use. [3 marks] (b) Referring to your result from part (a), comment on what happens to K* when each of the following variables change (holding other variables constant), (i) The measure of technology (A) falls (ii) The depreciation rate (8) increases (iii) The real interest rate (r) increases [2 marks] [2 marks] [2 marks] [Hint: For each of parts (i)-(iii) you are being asked to comment on what happens to K* if just the variable mentioned in the question part changes. Your answer should state whether K* increases, decreases, or stays the…

In the week-4 materials, when deriving labour supply, we assumed that the substitution effect dominated the income effect. What impact would there be on labour supply if this was not the case? Briefly investigate how such a change could theoretically affect the imposition of a minimum wage above the market clearing wage. (Your answer is likely to benefit from diagrammatic support.)

Answer 2

Question

Chapter 32, 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 a country in the given interval of time.

Fiscal policy:

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

Monetary policy:

It includes money supply changes. When 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

Explanation of Solution

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

From the data it is concluded that policy maker used expansionary monetary 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.

Government debt as percentage of the GDP rose from 64.8% in 1991 to 157.5% in 2003. And the government deficit has also increased from to 7.67%. This indicates the use of expansionary fiscal policy by the policy makers.

To determine

Concept Introduction:

Gross Domestic Product (GDP):

It is defined as the value of output which is produced inside the border of a country in the given interval of time.

Fiscal policy:

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

Monetary policy:

It includes money supply changes. When 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

Explanation of Solution

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.

Monetary policy is ineffective because the interest rate is very low. However, in such a case fiscal policy is fully effective as there is no crowding out due to increase in interest rate. The change in expenditure or tax is reflected as the change in the real GDP.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 32, 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 a country in the given interval of time.

Fiscal policy:

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

Monetary policy:

It includes money supply changes. When 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

Explanation of Solution

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

From the data it is concluded that policy maker used expansionary monetary 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.

Government debt as percentage of the GDP rose from 64.8% in 1991 to 157.5% in 2003. And the government deficit has also increased from to 7.67%. This indicates the use of expansionary fiscal policy by the policy makers.

To determine

Concept Introduction:

Gross Domestic Product (GDP):

It is defined as the value of output which is produced inside the border of a country in the given interval of time.

Fiscal policy:

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

Monetary policy:

It includes money supply changes. When 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

Explanation of Solution

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.

Monetary policy is ineffective because the interest rate is very low. However, in such a case fiscal policy is fully effective as there is no crowding out due to increase in interest rate. The change in expenditure or tax is reflected as the change in the real GDP.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 32, 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 a country in the given interval of time.

Fiscal policy:

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

Monetary policy:

It includes money supply changes. When 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

Explanation of Solution

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

From the data it is concluded that policy maker used expansionary monetary 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.

Government debt as percentage of the GDP rose from 64.8% in 1991 to 157.5% in 2003. And the government deficit has also increased from to 7.67%. This indicates the use of expansionary fiscal policy by the policy makers.

To determine

Concept Introduction:

Gross Domestic Product (GDP):

It is defined as the value of output which is produced inside the border of a country in the given interval of time.

Fiscal policy:

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

Monetary policy:

It includes money supply changes. When 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

Explanation of Solution

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.

Monetary policy is ineffective because the interest rate is very low. However, in such a case fiscal policy is fully effective as there is no crowding out due to increase in interest rate. The change in expenditure or tax is reflected as the change in the real GDP.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 32, 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 a country in the given interval of time.

Fiscal policy:

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

Monetary policy:

It includes money supply changes. When 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

Explanation of Solution

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

From the data it is concluded that policy maker used expansionary monetary 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.

Government debt as percentage of the GDP rose from 64.8% in 1991 to 157.5% in 2003. And the government deficit has also increased from to 7.67%. This indicates the use of expansionary fiscal policy by the policy makers.

To determine

Concept Introduction:

Gross Domestic Product (GDP):

It is defined as the value of output which is produced inside the border of a country in the given interval of time.

Fiscal policy:

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

Monetary policy:

It includes money supply changes. When 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

Explanation of Solution

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.

Monetary policy is ineffective because the interest rate is very low. However, in such a case fiscal policy is fully effective as there is no crowding out due to increase in interest rate. The change in expenditure or tax is reflected as the change in the real GDP.

Answer 6

Chapter 32, 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 a country in the given interval of time.

Fiscal policy:

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

Monetary policy:

It includes money supply changes. When 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

Explanation of Solution

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

From the data it is concluded that policy maker used expansionary monetary 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.

Government debt as percentage of the GDP rose from 64.8% in 1991 to 157.5% in 2003. And the government deficit has also increased from to 7.67%. This indicates the use of expansionary fiscal policy by the policy makers.

Answer 7

Chapter 32, 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 a country in the given interval of time.

Fiscal policy:

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

Monetary policy:

It includes money supply changes. When 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

Explanation of Solution

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

From the data it is concluded that policy maker used expansionary monetary 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.

Government debt as percentage of the GDP rose from 64.8% in 1991 to 157.5% in 2003. And the government deficit has also increased from to 7.67%. This indicates the use of expansionary fiscal policy by the policy makers.

Answer 9

Expert Solution

Answer 10

Expert Solution

Answer 11

Expert Solution

Answer 12

To determine

Concept Introduction:

Gross Domestic Product (GDP):

It is defined as the value of output which is produced inside the border of a country in the given interval of time.

Fiscal policy:

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

Monetary policy:

It includes money supply changes. When 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

Explanation of Solution

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.

Monetary policy is ineffective because the interest rate is very low. However, in such a case fiscal policy is fully effective as there is no crowding out due to increase in interest rate. The change in expenditure or tax is reflected as the change in the real GDP.

Answer 13

To determine

Concept Introduction:

Gross Domestic Product (GDP):

It is defined as the value of output which is produced inside the border of a country in the given interval of time.

Fiscal policy:

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

Monetary policy:

It includes money supply changes. When 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 14

Expert Solution

Explanation of Solution

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.

Monetary policy is ineffective because the interest rate is very low. However, in such a case fiscal policy is fully effective as there is no crowding out due to increase in interest rate. The change in expenditure or tax is reflected as the change in the real GDP.