Suppose the economy is initially in long-run equilibrium. The government enacts a policy to decrease taxes. In the short-run, this expansionary fiscal policy will cause: OA. A shift from SRAS₂ to SRAS, and a movement to point D, with a higher price level and lower output. OB. A shift from AD₂ to AD, and a movement to point C, with a lower price level and the same output. OC. A shift from AD, to AD₂ and a movement to point B, with a higher price level and higher output. OD. A shift from SRAS, to SRAS₂ and a movement to point B, with a lower price level and higher output. CIT Price Level 122 120- 118- 116- 114 112- 110- 108- 106- 104- 102- 100- 98- 96- 94- 92- 90+ 0 D LRAS 10 B SRA SRA 8 10 12 Real GDP (trillions of 2000 dollars) AD: AD. 14

Suppose the economy is initially in long-run equilibrium. The government enacts a policy to decrease taxes. In the short-run, this expansionary fiscal policy will cause: OA. A shift from SRAS₂ to SRAS, and a movement to point D, with a higher price level and lower output. OB. A shift from AD₂ to AD, and a movement to point C, with a lower price level and the same output. OC. A shift from AD, to AD₂ and a movement to point B, with a higher price level and higher output. OD. A shift from SRAS, to SRAS₂ and a movement to point B, with a lower price level and higher output. CIT Price Level 122 120- 118- 116- 114 112- 110- 108- 106- 104- 102- 100- 98- 96- 94- 92- 90+ 0 D LRAS 10 B SRA SRA 8 10 12 Real GDP (trillions of 2000 dollars) AD: AD. 14

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 1.4P

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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?
Why is spending by the U.S. government on scientific research at NASA fiscal policy while spending by the University of Illinois is not fiscal policy? Why is a cut in the payroll tax fiscal policy whereas a cut in a state income tax is not fiscal policy?
Which of the following would be classed as an expansionary fiscal policy? O A. An increase in the money supply Ов. A reduction in the number of goods exempted from VAT An increase in government taxation OD. An increase in government expenditure
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Which of the following is NOT a tool of fiscal policy. O taxes O government spending Onterest rates none of the above Question 2 Assume the economy is in a deep recession. The appropriate fiscal policy response would be to: raise taxes and raise govemment expenditures cut taxes and cut govermment expenditures raise taxes and cut government expenditures O cut taxes and increase government expenditures D Question 3 Crowding out refers to the fact that: Tax cuts will cause inflation O Tax cuts may result in higher interest rates which will "crowd out" business investment spending O increased government spending will crowd out spending on imports none of the above
FISCAL POLICY, DEF spending has shifted AD left and now we are at AD • Assume that the economy's full-employment is Q- and we want the government to restore full-employment with stable Py using fiscal tools. It has 3 main options: 1. Increase government spending 2. Reduce taxes 3. Use a combination of the twe Assume that a hypothetical economy with an MPC of 0.8 is experiencing severe recession. 1) By how much would government spending have to increase to shift the aggregate demand curve rightward by $25 billion? How large a tax cut would be needed to achieve this same increase in aggregate demand? Why the difference? 1 Money Multiplier (K) = 1-MPC Total Change in Spending = multiplier × new spending injection
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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)
Why does a $1 increase in government purchases lead to more than a $1 increase in income and spending? OA. Through the government purchases multiplier, the $1 increase in government spending will lead to a decrease in aggregate demand and national income, which will lead to a decrease in induced spending OB. Through the government purchases multiplier, the $1 increase in government spending will lead to an increase in aggregate demand and national income, which will lead to a decrease in induced spending OC. Through the government purchases multiplier, the $1 increase in government spending will lead to an increase in aggregate demand and national income, which will lead to an increase in induced spending OD. Through the government purchases multiplier, the $1 increase in government spending will lead to a decrease in aggregate demand and national income, which will lead to an increase in induced spending
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Suppose the economy is in recession. Policymakers estimate that aggregate demand is$100 billion short of the amount necessary to generate the long run natural rate of output.That is, if aggregate demand were shifted to the right by $100 billion, the economy wouldbe in long run equilibrium.a. Explain the impact on the economy if the government chooses to use fiscal policy tostabilize the economy and the marginal propensity to consume (MPC) is given as0.75 with no crowding out.