18- tax cuts directed at higher income individuals will do more to stimulate the economy than those directed to lower income individuals, in the keynesian model.-true 19- growing federal budget deficits are a problem cased by kenynesian economics- false 20- Keynes advocated using government deficits in times of depression -true

18- tax cuts directed at higher income individuals will do more to stimulate the economy than those directed to lower income individuals, in the keynesian model.-true 19- growing federal budget deficits are a problem cased by kenynesian economics- false 20- Keynes advocated using government deficits in times of depression -true

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 2.9P

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Similar questions

Under what general macroeconomic circumstances might a government use expansionary fiscal policy? When might it use contractionary fiscal policy?
'The U.S., world's largest economy, went into recession in February of 2020. It has taken a broad range of steps to combat the economic disruption caused by COVID-19. In response to this crisis, governments have enacted sweeping and sizable fiscal stimulus of trillions of dollars.' Is it an appropriate policy response if the primary responsibility of the government is to maintain economic growth? Explain the significance of Fiscal policy for an economy? Is there any difference in the two approaches of fiscal expansion through - direct transfer benefit and government spending directly on purchase of goods and services that may influence real GDP? What role does multiplier play? Explicate. Support your answer with the suitable diagram/s.
1. If the government is required to balance the budget and the economy falls into a recession, which of the actions is a feasible policy response? - invest in infrastructure - cut spending equal to the reduction in tax revenue - cut taxes to encourage consumer spending - increase government spending to stimulate the economy 2. What is a likely consequence of this policy? - The negative consequences of the recession are magnified. - Consumer spending increases due to their ability to keep more of their after-tax income. - Unemployment falls due to the economic stimulus. - There is hyperinflation due to an increase in aggregate demand.
Question 2In the basic Keynesian model, fiscal policy should not cause an increase in the public debt. However, in this course you have learnt that most national governments have accumulated public debt by mis-using the Keynesian model. The worst example cited is that of Greece. Explain why governments find it difficult if not impossible to use fiscal policy without accumulating debt. Explain how discretionary fiscal policy is different from automatic stabilizers. Which one is the more likely to cause the debt accumulation problem in part A? Explain why a foreign debt is worse than a domestic debt.
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.
Always use economic terms, diagrams. "Counter-cyclical fiscal policy works. If consumers and businesses lose confidence because of the changing world, the government can fix this economic problem - that is what the Biden $1.9 trillion stimulus was all about. Sure, there might be some issues with the deficit, but given a recovery, the government can pay that deficit off. Also, since we are in a very inflationary period again we might expect counter-cyclical fiscal policy to resolve some of the debt issues." Please explain this comment. (Hint: don't forget to use an AS AD diagram and possibly a business cycle diagram).
explanation. Be sure to exp Assume the United States has been in another recession for the past 10 months. Unemployment is 10% and GDP has dropped $1.9 trillion from its previous peak of $ 20.8 trillion. The housing and heavy equipment industries have been hit the hardest. Inflation has been near the 2% target but has started to dip below. Also, the countries average MPC is 60. Determine the best fiscal policy/strategy to help the economy recover and explain why it is the best choice. Be sure to reference Aggregate Demand and Aggregate Supply and explain your specific tools in your answers. Calculations Explanation Graph (More space for the explanation on the back)
-SRAS PL, PL AD2 AD Y,Y2 REAL GDP The Aggregate Demand Model shows an increase in Aggregate Demand or GDP, Which type of Fiscal Policy was used to cause this change and why? Expansionary Policy to raise GDP and lower the unemployment rate Expansionary Policy to raise GDP and lower Inflation Contractionary Policy to decrease GDP and lower the unemployment rate Contractionary Policy to increase GDP and Increase Inflation PRICE LEVEL
Que 41: What do you understand by cyclicality of the fiscal policy?
The US government has recently announced and started to implement a large-scale fiscal expansion to mitigate the negative effects of the coronavirus pandemic and reboot the US economy. The Biden administration argued that this fiscal stimulus policy can rapidly accelerate the economic recovery without triggering high levels of inflation. Suppose the US fiscal stimulus can increase the US aggregate output level. possible effect of this fiscal policy on output and on the trade balance of European countries. And which graph can I use
07. What factors make an expansionary "stimulus" fiscal policy effective? One answer a) A government budget deficit associated with fiscal stimulus should should borrow money from those who spend less and save more, to those who spend more and save less. b) A permanent decrease in taxes is more effective in stimulating spending than a temporary one c) An increase in government purchases of goods and services should be temporary and should not permanently displace private spending d) The most expansionary way of financing the budget deficit associated with a fiscal stimulus policy is by the central bank expanding the quantity of money in circulation. e) Infrastructure investment belongs with long-term growth policy, but invariably makes a poor element in stimulus policy because such investment normally take a long time to implement. f) All the above
In the first quarter 2020, the unemployment rate in the Gaza Strip reached to 69% due to COVID 19. If the Palestinian government decided to solve this problem by an expansionary fiscal policy. Explain the impacts of this policy on the interest rate and aggregate output? Using graph?