The economy of a hypothetical country has been stable for two or three years with very low unemployment. Wages have been gradually increasing during this time. Now an aggressive policy of increasing tariffs on foreign goods imported into the country results in retaliatory actions from the other countries against the hypothetical country’s products and services. This causes great loss of business in the hypothetical country, and results in significant unemployment. Describe, in a short essay inserted below these questions, how the economic situation will change, and how the government could best respond to these changes. Include detailed answers to the following questions in your essay: What kind of economic gap will start to occur (inflationary or recessionary)? What kind of fiscal policy might be helpful to stabilize the economy (expansionary or contractionary)? What specific fiscal policy tools does the government have available, and how should these tools be utilized to maximize their effect in stabilizing the economy? What would be the likely impact on the government budget and national debt of the use of these fiscal policy tools?
The economy of a hypothetical country has been stable for two or three years with very low unemployment. Wages have been gradually increasing during this time. Now an aggressive policy of increasing tariffs on foreign goods imported into the country results in retaliatory actions from the other countries against the hypothetical country’s products and services. This causes great loss of business in the hypothetical country, and results in significant unemployment. Describe, in a short essay inserted below these questions, how the economic situation will change, and how the government could best respond to these changes. Include detailed answers to the following questions in your essay: What kind of economic gap will start to occur (inflationary or recessionary)? What kind of fiscal policy might be helpful to stabilize the economy (expansionary or contractionary)? What specific fiscal policy tools does the government have available, and how should these tools be utilized to maximize their effect in stabilizing the economy? What would be the likely impact on the government budget and national debt of the use of these fiscal policy tools?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The economy of a hypothetical country has been stable for two or three years with very low
- What kind of economic gap will start to occur (inflationary or recessionary)?
- What kind of fiscal policy might be helpful to stabilize the economy (expansionary or contractionary)?
- What specific fiscal policy tools does the government have available, and how should these tools be utilized to maximize their effect in stabilizing the economy?
- What would be the likely impact on the government budget and national debt of the use of these fiscal policy tools?
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