ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Read the following premise carefully and answer the questions specifically and in detail.
"In the face of unstable
A. Express in detail the effects of expansionary and contractionary fiscal policy on income and the price level.
B. Using the premise presented as a basis, argue about the intervention of fiscal policy as an instrument to promote the growth, sustainability and economic stability of a country. (Gives an example in detail.)
Expert Solution
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Step 1: Define key term
Fisacl Policy:
Fiscal policy refers to the use of government spending and taxation to influence the economy. It is ine of the tools that governments employ to achieve macroeconomic objectives, such as economic growth, employment, and price stability.
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- Read the following premise carefully and answer the questions specifically and in detail. "In the face of unstable economic growth due to a recession or accelerated inflation, the potential problems of high public debt include increased income inequality, reduced economic incentives, and crowding out private investment." 1. Explains in detail fiscal policy, its role and its effects on short- and long-term economic fluctuations. 2. Explain each of the tools that exist in expansionary fiscal policy and contractionary fiscal policy.arrow_forwardUsing examples from 2008-currently, explain fiscal policy. In your answer be sure to include what Fiscal Policy is and how some of the recent policies have impacted the economy (GDP and Budgets) in both the short term and the long term.arrow_forwardOnly D, E, Farrow_forward
- 3. Explain how expansionary fiscal policy can close a recessionary gap using an appropriate diagram. Note: Use the following terms. They are: Long-run aggregate supply curve (LRAS). short-run aggregate supply curve (SRAS), Aggregate demand (AD). Real GDP price level. potential GDP, etc.arrow_forwardThe economy is experiencing negative GDP growth and high unemployment. Which fiscal policy action should the government implement in an attempt to fix this problem? A.) increase spending B.) raise taxes C.) increase the reserve requirement D.) decrease interest ratesarrow_forward1. Why is a $100 billion increase in government spending on goods and services more expansionary than a $100 billion decrease in taxes?arrow_forward
- Which of the following statements about the Canadian federal budget is FALSE? A. Currently, Canada has a federal budget deficit. B. The Minister of Finance presents the federal bugdet to the Canadian Parliament. C. The largest source of federal government revenues are personal income taxes. D. The largest source of federal government outlays are transfer payments to persons and other levels of government. E. Canada has not had federal budgetary surpluses in any fiscal year over the 2000 to 2020 period.arrow_forward3. What is fiscal equalization? Give an examplearrow_forwardWhich is a good fiscal policy when inflation is very low and unemployment is very high? Decrease the money supply O Increase government purchases of goods and services Cut government transfer payments Decrease the budget deficitarrow_forward
- 1. The following is information for the economy of Texas, where taxes are wholly autonomous: C = 40 + 0.8YD where YD = (Y – T) G = T = 360 I = 120 XN = 107 – 0.1Y a. What is the value of equilibrium income? b. At equilibrium, what is the amount of budget deficit or budget surplus? c. If government increased both its spending and taxes by $60, what would be the new equilibrium income?arrow_forwardAlways 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).arrow_forward4) What are direct expenditure offsets and how do they influence the effects of fiscal policy?arrow_forward
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