Policymakers who want to stabilize the economy must decide how much to change the money supply, government spending, or taxes. True or False: One of the reasons why it is difficult for policymakers to choose the appropriate strength of their actions is that the impact of a change in policy on aggregate demand is often too fast. True False The problem of time inconsistency applies to fiscal policy as well as to monetary policy. Suppose the government announced a reduction in taxes on income from capital investments, like new factories. If investors believed that capital taxes would remain low, the government's action would result in a capital stock. larger/smaller After investors have responded to the announced tax reduction, the government can get more tax revenue by capital investments. taxes on income from increasing/decreasing True or False: Given your answer to the previous part, investors would not believe the government's announcement.

Policymakers who want to stabilize the economy must decide how much to change the money supply, government spending, or taxes. True or False: One of the reasons why it is difficult for policymakers to choose the appropriate strength of their actions is that the impact of a change in policy on aggregate demand is often too fast. True False The problem of time inconsistency applies to fiscal policy as well as to monetary policy. Suppose the government announced a reduction in taxes on income from capital investments, like new factories. If investors believed that capital taxes would remain low, the government's action would result in a capital stock. larger/smaller After investors have responded to the announced tax reduction, the government can get more tax revenue by capital investments. taxes on income from increasing/decreasing True or False: Given your answer to the previous part, investors would not believe the government's announcement.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question 14
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