MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
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Chapter 11, Problem 2SQ
To determine
The range of the
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The federal government is considering some fiscal policy alternatives. Will its choice between the following pairs of policy changes influence the level of aggregate demand, and if so how? 1) A reduction in military procurement of 100 versus a reduction in scientific research of 100. 2) A reduction in mass transit programs of 100 versus a tax increase of 100.
a. Which statement best describes the classical fiscal policy prescription for a recession?
Select
"Do nothing; the economy will self-adjust."
"Increase government spending and/or decrease taxes."
"Decrease government spending and/or increase taxes."
b, Which statement best describes the Keynesian fiscal policy prescription for a recession?
Select
"Decrease government spending and/or increase taxes."
"Increase government spending and/or decrease taxes."
"Do nothing. If V is stable, fiscal policy does not matter."
c. Which statement best describes the monetarist fiscal policy prescription for a recession?
Select
"Do nothing. If V is stable, fiscal policy does not matter"
"Increase government spending and/or decrease taxes"
"Do nothing; the economy will self-adjust."
d. Which statement best describes the Keynesian monetary policy prescription for a recession?
Select
"Decrease the money supply. Higher interest rates decrease investment."
"Increase the money supply. Lower interest rates…
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government
decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession.
Price Level
160
140
120
100
80
60
$
40
20
0
Fiscal Policy
LRAS
AD₁
Real GDP (billions of dollars)
billion
AS
80 160 240 320 400 480 560 640 720 800
AD
Instructions: Enter your answers as a whole number.
a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium?
$
billion
O
b. If the MPC is 0.8, how much does government purchases need to change to shift aggregate demand by the amount you found in
part a?
Suppose instead that the MPC is 0.9.
c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium?
Aggregate demand needs to change by $
billion and government purchases need to change by $
billion.
Chapter 11 Solutions
MACROECONOMICS FOR TODAY
Ch. 11.3 - Prob. 1YTECh. 11 - Prob. 1SQPCh. 11 - Prob. 2SQPCh. 11 - Prob. 3SQPCh. 11 - Prob. 4SQPCh. 11 - Prob. 5SQPCh. 11 - Prob. 6SQPCh. 11 - Prob. 7SQPCh. 11 - Prob. 8SQPCh. 11 - Prob. 9SQP
Ch. 11 - Prob. 10SQPCh. 11 - Prob. 11SQPCh. 11 - Prob. 1SQCh. 11 - Prob. 2SQCh. 11 - Prob. 3SQCh. 11 - Prob. 4SQCh. 11 - Prob. 5SQCh. 11 - Prob. 6SQCh. 11 - Prob. 7SQCh. 11 - Prob. 8SQCh. 11 - Prob. 9SQCh. 11 - Prob. 10SQCh. 11 - Prob. 11SQCh. 11 - Prob. 12SQCh. 11 - Prob. 13SQCh. 11 - Prob. 14SQCh. 11 - Prob. 15SQCh. 11 - Prob. 16SQCh. 11 - Prob. 17SQCh. 11 - Prob. 18SQCh. 11 - Prob. 19SQCh. 11 - Prob. 20SQ
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