Which of the following sequences best represents the crowding-out effect? O a. government purchases ↓➡ GDP ↓➡ demand for money ↓ ⇒ equilibrium interest rate ↓➡ quantity of goods and services demanded ↓ O b. taxes ↑ GDP↓ demand for money ↓➡ equilibrium interest rate ↑ ➡quantity of goods and services demanded ↓ O c. government purchases ↑ GDP ↑supply of money ↓ 1 ➡ equilibrium interest rate ↑ quantity of goods and services demanded ↓ O d. government purchases ↑ ⇒GDP ↑ demand for money ↑ ➡ equilibrium interest rate ↑ quantity of goods and services demanded ↓

Which of the following sequences best represents the crowding-out effect? O a. government purchases ↓➡ GDP ↓➡ demand for money ↓ ⇒ equilibrium interest rate ↓➡ quantity of goods and services demanded ↓ O b. taxes ↑ GDP↓ demand for money ↓➡ equilibrium interest rate ↑ ➡quantity of goods and services demanded ↓ O c. government purchases ↑ GDP ↑supply of money ↓ 1 ➡ equilibrium interest rate ↑ quantity of goods and services demanded ↓ O d. government purchases ↑ ⇒GDP ↑ demand for money ↑ ➡ equilibrium interest rate ↑ quantity of goods and services demanded ↓

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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Given an upward-sloping short-run AS curve, expansionary fiscal policy (ceteris paribus) will result in: (i) Higher prices in the short run (ii) Higher output in the short run (iii) Higher prices in the long run (iv) Higher output in the long run O a. Only (i) and (ii) O b. Only (iii) and (iv) O c. Only (ii) and (iii) O d. Only (i) and (iv)
Exhibit: Fiscal Policy 2 Price level рк O P Fr P LRAS AD₁ SRASI Real GDP per year If discretionary fiscal policy is used to eliminate the gap, policy actions will shift the short-run aggregate supply curve to the left until long-run equilibrium is restored at a price level, P, and output level, Yp. shift the aggregate demand curve to the left until long-run equilibrium is restored at a price level, P, and output level, Yp. shift the aggregate demand curve to the left until long-run equilibrium is restored at a price level, P, and output level, Yp. shift the aggregate demand curve and the short-run aggregate supply curve to the left until long-run equilibrium is restored at a price level Pk and output level, Yp.
Which of the following statements is true of government spending? O An increase in government spending raises the equilibrium level of income by a multiple of the original spending increase. O Government spending is a part of monetary policy, not fiscal policy. O A decline in government spending brings about an expansion in the economy. O An increase in government spending increases the recessionary gap in the economy. An increase in government spending shifts the aggregate demand curve downward by a fraction of the rise in governiment spending.
In each of the following cases, either a recessionary or inflationary gap exists. Assume that the aggregate sup- ply curve is horizontal, so that the change in real GDP arising from a shift of the aggregate demand curve equals the size of the shift of the curve. Calculate both the change in government purchases of goods and ser- vices and the change in government transfers necessary to close the gap. 6, a. Real GDP equals $100 billion, potential output equals $160 billion, and the marginal propensity to consume is 0.75.
When spending by the federal government exceeds net taxes, O a. the money supply must fall b. aggregate supply moves rightward c. the aggregate demand curve shifts rightward d. the price level tends to fall O e. there is a federal budget surplus
Question 20 Assume the economy is in short-run macro-equilibrium at E1. If the federal government engages in expansionary fiscal policy then: Price Level LRAS SRAS E1 P1 AD Real GDP Y1 Yp a the short-run aggregate supply curve shifts left, leading to cost push inflation and a decrease in real GDP O b) the short-run aggregate supply curve shifts right, leading to deflation and an increase in real GDP c) O the aggregate demand curve shifts right, leading to cost push inflation and growth in the economy the aggregate demand curve shifts right, leading to demand-pull inflation and an increase in real GDP Op) the aggregate demand curve shifts left, leading to deflation and a decrease in e) real GDP
The existence of lags in designing and implementing fiscal policy helps illustrate some of the limitations of fiscal policy aimed at easing the burdens of a recession. Which of the following statements best describes a situation when fiscal policy is more appropriate? O The Implementation lag is shorter than the recognition and legislative lags. O Demand-pull Inflation is expected to occur as the economy begins to self-correct. O To stimulate an economy that is in a severe recession or one that is slow to correct. O Fiscal policy favors tax cuts Instead of increased government purchases since this removes the legislative lag.
> Question 2 What are the major limitations associated with effective fiscal policy? O poor information, the multiplier effect, and the bandwagon effect O aggregate demand deficiency, unemployed resources, and long run expenses. O sticky wages, ricardian equivalence, and the bandwagon effect O crowding out, timing, and magnitude Question 23 A $25 tariff that raised the world price from $150 to $175 would: Price $200 175 150 Domestic Supply 500 7501,000:1,300 1,150 World Supply + Tariff World Supply Domestic Demand Quantity O generate lost gains from trade of $3125 not generate any lost gains from trade, because no trades would be deterred. O generate lost gains from trade of $7500 O generate lost gains from trade of $1875
TRUE - OR - FALSE Using fiscal policy to increase aggregate demand may have undesirable inflationary consequences. O True O False
The Canadian government spending in recent years has resulted in persistent deficits. This has made it so that they have had to increase borrowing. They must be careful since this will lead to Select one: O a Crowding out O b. Transfer payments Oc. Implicit liabilities Od Automatic stabilizers Examples of automatic stabilizers set up in the economy would be everything listed EXCEPT for: Select one: O a. Child daycare benefits b. The prices of goods O c. Income Taxes O d. Unemployment payments Clear my choice
Which of the following statements is true? O A balanced budget would not affect income because an increase in government spending is exactly matched by an increase in taxes. OIf crowding out exists, contractionary fiscal policy will cause the aggregate demand curve to shift in by more" than indicated by the government spending multiplier. O When aggregate expenditures are greater than real GDP, there will be inventory accumulation. O The flatter the aggregate supply curve, the less the amount of government spending necessary to close a $1 billion GDP gap.
Given the following information: Consumption: 100 + 0.8 Yd Investment: 150 – 16i Govt. expenditure: 100 Taxes: 0.25Y DD for money: 0.2Y – 2i Nominal money supply: 300 Price level: 2 a) Determine equilibrium level of income and rate of interest b) If govt expenditure increases by 50, what will be the new equilibrium of income and the rate of interest? c) Is there any crowding out? If yes, what is the extent of crowding out of income?