Suppose the economy is in equilibrium at point B which is below the full-employment output of point D. If the government implements fiscal policy targeted at moving real GDP back to point D, but crowding out significantly reduces the effectiveness of the fiscal policy, the equilibrium point will likely end up closer to point   Multiple Choice A B C D

Q: If the MPC is 0.80 and the government increases transfer payments by $45 billion, then the initial…

A: When government increases transfer payments it results in more disposable income to spend. . A rise…

Q: Q6. How does fiscal policy affect the economy?

A: Answer: Fiscal policy: fiscal policy refers to the policy of government in which the government…

Q: Which of the following is the best example of an automatic stabilizer? O national defense…

A: The automatic stabilizer is a type of fiscal policy (i.e., increases public spending and decreases…

Q: real GDP = (Change in Taxes) X Change in equilibrium (Tax Multiplier) Change in equilibrium real GDP…

A: Initial change in the tax or investment causes multiple change in final income. The value of…

Q: Unemployment insurance and welfare programs work as automatic stabilizers. True False

A: True. Unemployment insurance and welfare programs do function as automatic stabilizers.Here's…

Q: Suppose, the Australian economy is in good shape (operating at its productive capacity Y*). However,…

A: Due to increase in spending and fiscal expansion,interest rates would be lowered.

Q: According to the standard textbook Keynesian analysis, which is greater: the tax multiplier or the…

A: Spending multiplier measures the rate of change in national income arising from a change in…

Q: Explain how the conduct of fiscal policy affects consumption and investment in equilibrium.

A: Fiscal policy is a macroeconomic policy that is implemented by the government for monitoring and…

Q: Suppose the MPC is 0.8 and the crowding out effect is $30 billion. The government aims to increase…

A: Gross domestic product (GDP) is the standard measure of the value added created through the…

Q: Based on your understanding of the multiplier effect and the crowding-out effects, do you think that…

A: The macroeconomic equilbrium in an economy occurs at the point where the aggregate demand in the…

Q: According to the classical macroeconomic model, expansionary fiscal policy has an inflationary…

A: Fiscal Policy is a policy by which the governments adjusts its amount of expenditure and taxes…

Q: Suppose equilibrium GDP is less than full-employment output and the economy is in a recession. What…

A: Fiscal policy is used by government to make the economy going normal without any fluctuations. The…

Q: During a recession, the government decides to give an additional child tax credit to households of…

A: Recession occurs when there is a fall in the aggregate demand in the economy. The fall in the…

Q: Expansionary fiscal policy will: a shift the aggregate demand curve left. b shift the aggregate…

A: Fiscal Policy refers to the policy that the government undertakes to either increase economic growth…

Q: Which of the following would be most likely to induce Congress and the president to conduct…

A: Fiscal policy refers to the policy under which the state or government uses instruments such as…

Q: Given MPC (marginal propensity to consume) = 0.75, if the government implements an expansionary…

A: MPC = 0.75  Tax multiplier = (-MPC/1-MPC) Tax multiplier= (-0.75/1-0.75)Tax multiplier=…

Q: 36) An automatic fiscal stabiliser is      A) a monetary or fiscal policy that aims to smooth out…

A: The business cycle occurs when there is ups and downs in the gross domestic product along its trend…

Q: Which of the following is not an automatic stabilizer. Pick a,b,c, or d A) Sales tax B)State…

A: Automatic stabilizer brings the economy back to full employment.

Q: Expansionary fiscal policy refers to (increases, decreases) in government spending or ases,…

A: In expansionary fiscal policy, government cuts tax rates(income tax & corporate tax) and boost…

Q: Fiscal policy of increasing government expenditures can be more potent than monetary policy in…

A: Fiscal and monetary policy: Fiscal policy signifies the policies taken by the government of an…

Q: Suppose that autonomous consumption (a) is 300, private investment spending(I) is 420, government…

A: We know, from the basic macroeconomic identity, that  Y = C(Y - T) + I + G Here, we have I = 420, T…

Q: Suppose actual real GDP is $13.74 trillion, potential real GDP is $12.69 trillion, and the marginal…

A: Given  Actual real GDP =$13.74 trillion  Potential GDP =$12.69 trillion. Marginal propensity to…

Q: Suppose the economy begins at full employment. Label this starting point as point "1." Then,…

A: Aggregate supply: The aggregate supply or AS is a macroeconomic concept. The total amount of…

Q: List what specific, deliberate actions the federal government could take to enact expansionary…

A: Expansionary fiscal policy is aimed at increasing aggregate demand when the economy is in a…

Q: Which one of the following propositions would be consistent with a supply-side view of fiscal…

A: Macroeconomics analyzes the economy as a whole. It studies aggregate economic concepts such as…

Q: On the following graph, AD1 represents the initial aggregate demand curve in a hypothetical economy,…

A: a) Based on the graph, the initial short-run equilibrium level of real GDP is $10 trillion and the…

Q: Consider the Keynesian Cross model. If the fiscal multiplier equals 2, and the government decides to…

A: Fiscal multiplier =2 Increase government spending by 100

Q: An expansionary fiscal policy can increase the level of aggregate demand by reducing corporate tax…

A: The term "fiscal policy" refers to a government's approach to influencing the state of the economy…

Q: Differentiate between the expansionary fiscal policy and contractionary fiscal policy with diagram…

A: Fiscal Policy: Fiscal policy is used to influence aggregate demand and maintain stability in the…

Q: Discuss three reasons why the use of fiscal policy to stabilize the economy is more complicated than…

A: The policies implemented by the government authorities of a country to control public spending and…

Q: Draw an aggregate demand/aggregate supply graph of an economy in a Recessionary

A: Hey, thank you for the question, since there is multiple question posted, according to our policy we…

Q: Suppose the economy had been producing at potential output but is now experiencing a recession.…

A: To stimulate the output or control the recessionary forces in the economy government generally…

Q: If a recession persists due to nominal wage and price stickiness (i.e., slow adjustment of nominal…

A: Fiscal policy is set by the government which shows the changes in government spending or taxes.…

Q: The initial short-run equilibrium level of real GDP is $ billion, and the initial short-run…

A: Aggregate demand (AD) is the sum of all the finished goods and services produced domestically in an…

Q: Based on our understanding of the model presented in Ch3, a 5% tax cut in a country with balanced…

A: Balance Budget  Every government plans its budgeted revenues and expenses every year. Government…

Q: in another economy, the MPC = 4/5, government needs to increase expenditures $20 to complete a…

A: In this scenario, the marginal propensity to consume (MPC) is 4/5, meaning that for every additional…