Question 22 When is fiscal policy more effective at stimulating real GDP? When the marginal propensity to consumer is higher When the economy is in a liquidity trap When the economy has substantial "slack" or excess capacity, such as unemployed workers All of the other answers are correct.

Question 22 When is fiscal policy more effective at stimulating real GDP? When the marginal propensity to consumer is higher When the economy is in a liquidity trap When the economy has substantial "slack" or excess capacity, such as unemployed workers All of the other answers are correct.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 15P

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P PE ж LRAS YN SRAS AD Y Consider the graphfor this and the next two questions. Assume the following graph depicts the situation in the US right before the financial crisis that recently engulfed the USA. Which curve would you shift in the graph to explain the initial impact of the financial crisis? Indicate the new position of the economy and what it implies. Prescribe a fiscal policy (contractionary or expansionary) policy you will use to bring the economy to its long-term full employment state.
consider each fiscal policy listed here, which policies would shift the aggregate demand curve in the way that restores full employment output at the lowest possible price level check all that apply. Cut taxes by 60 billion. Decrease taxes by 80 billion and decrease government expenditures by 20 billion Increase government expenditures by 50 billion and raise taxes five40 billio Increase government expenditures by 60 billion and raise taxes by 60 Reduce government expenditures by 30 billion
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Exercise 4 Use a combination of text and drawing of figures when answering the following questions: a) Discuss the effect of an expansionary fiscal policy using the IS TR model. Why doces the interest rate change and what does it mean for the Keynesian multiplier? b) How will the answer from the previous sub-question change if: i. the inflation targeting of the Central Bank became more flexible? ii. the country opens up like after a pandemic leading to more imports? c) Explain the difference between the effect of an expansionary fiscal policy using an IS- TR-IFM model comparing Norway and Denmark as examples of countries with different exchange rate regimes. d) Assume a model where actual inflation depends on 1. Underlying inflation, 2. Output gap and 3. Supply chock. Explain in a diagram with an aggregate supply curve (AS) and using numbers for each of these three factors, the outcome in the short run and in the long run, if a negative supply shock like a war occurs.
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Calculate how much output would expand by if the government increased spending by $500 billion and financedthis spending by increasing lump-sum taxes by the same amount.
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Only typed answer The federal government decides to stimulate the economy and increases government expenditure on new infrastructure projects by $100 billion. The marginal propensity to consume is MPC = 0.3 and the marginal propensity to import is MPI = 0.08. Assuming no crowding out effect, what is the increase in output caused by the stimulus package of$100 billion in a closed economy?
How 'Automatic Fiscal Stabilisers may work within the UK economy. Outline any problems that may arise when automatic stabilisers begin to take effect
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