Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
thumb_up100%
Chapter 32, Problem 3TY
To determine
Explain the effect of deficit.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Describe fiscal policy. How can it affect the money supply, interest rates, and the expansion and contraction of the economy? What are the problems and pitfalls associated with fiscal policy? In what ways does it directly affect us?
Summarize MMT in one sentence.
Why should federal debt be thought of differently than household debt?
If fiscal budgets don’t need to balance, what should we be trying to balance in an economy?
Explain how a government deficit is society’s surplus.
If we don’t care about the size of the “deficit”, then is there NO limit on government spending?
How does MMT advise that the above problem be handled?
Will a budget deficit be more expansionary if it is financed by borrowing from the Federal Reserve or from the general public? Explain.
Chapter 32 Solutions
Economics: Principles & Policy
Knowledge Booster
Similar questions
- In mid-2001, the Bush administration won congressional approval for lower income tax rates. One stipulation of this rate cut was that the rates also be applied retroactively to taxes from the year 2000. Question: Would you consider this fiscal policy to be demand-side focused, supply-side focused, or both? Explain your response.arrow_forwardIf the government were to increase income taxes, how would that affect output (RGDP) and the price level in the short run? In the long run? Describe how the aggregate supply and aggregate demand curves would be affected? How should uncertainty about the size of fiscal multipliers affect the reliance on monetary and fiscal policy as tools for stabilizing the economy?arrow_forwardYou are the Secretary of the Treasury, working with the president to implement appropriate policies. Currently, actual GDP is below potential output and falling. To stabilize the economy, you'd recommend fiscal policy, which could include a. expansionary; increased government purchases and tax cuts b. expansionary; decreased government purchases and a tax increase c. contractionary; increased government purchases and tax cuts d. contractionary; decreased government purchases and a tax increasearrow_forward
- Right now many economies in the world are experiencing a downturn due to the Corona Virus.a) What kind of fiscal policy can governments use to address the decline? b) What actions will be taken by the government in implementing the fiscal policy that you described in part a? c) What will be the effect on Aggregate Demand (if any) as a result of the actions taken in part b?d) What will be the effect on Aggregate Supply (if any) as a result of the actions taken in part b?arrow_forwardA country is experiencing a recession due to an unexpected shock to aggregate demand. The economy's current level of real GDP is below its long-run equilibrium and the price level is below the equilibrium price level. Government officials must decide whether to implement fiscal policy or allow the economy to return to full employment on its own. a. Suppose that government officials have decided to implement expansionary fiscal policies. What are their desired outcomes? Instructions: You may select more than one answer. Click the box with a check mark for correct answers and click again to empty the box for the incorrect answers. ? increase aggregate supply increase aggregate demand ? expand real GDP ? raise the price level reduce unemployment ? control inflation b. Which of the following policy is consistent with expansionary fiscal policy? O Increase sales tax rates. O Reduce personal income tax rates. O Reduce spending on government infrastructure. O Increase the amount of currency…arrow_forwardList the 3 major economic goals of fiscal policy. Who is responsible for fiscal policy? What issue or problem in the economy would be fixed with expansionary fiscal policy? Contractionary fiscal policy? Using an aggregate supply and demand graph, show what happens when expansionary fiscal policies are enacted such as the 2017 Tax Cuts and Jobs Act when the economy is at full employment. Label all of the curves, the vertical and horizontal axis and show the direction and impact on the economy.arrow_forward
- What is the role of the Council Economic Advisers (CEA) as it relates to the effectiveness of the recent U.S. fiscal policy? Find the names and university affiliations of the present members of the CEA. (This may be a helpful website for finding sum of the information relating to the question. https://www.whitehouse.gov/cea/staff)arrow_forwardWas fiscal policy effective when the US economy was experiencing stagflation during the 1970s? Why or why not?arrow_forwardWhat are the three fiscal policy tools and how would each be used to counter a contractionary gap?arrow_forward
- 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.arrow_forwardWhy tax cuts can increase both aggregate demand and aggregate supply?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning