Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 29, Problem 7DQ
To determine
The effect of an increase in budget deficit.
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Students have asked these similar questions
The economy is at full employment, with fairly low levels of unemployment and inflation. What is likely to happen to GDP, unemployment, interest rates, and inflation if:
d) the government increases its deficit at the same time that the Fed is reducing the money supply.
e) the government increases its surplus at the same time that the Fed is increasing the money supply
Explain what effect a large federal deficit might have on interest rates?
What is the importance of fiscal policy during times of economic recession?
What is the reason why fiscal policy should be in tune with monetary policy when the economy is in the recession phase?
What is the importance of the Central Bank in the financial market?
Chapter 29 Solutions
Economics: Principles & Policy
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Similar questions
- What is the reason why fiscal policy should be in tune with monetary policy when the economy is in the recession phase? What is the importance of the Central Bank in the financial market?arrow_forwardAfter a series of measures to remedy the mortgage crisis that has beset the US economy, Ben Bernanke, chairman of the Board of Governors of the Federal Reserve and his colleagues are once again looking at cutting the central bank’s key interest rate as they hope that lowering the interest rates will give the economy a boost by encouraging investors and consumers to borrow and spend (Associated Press, n. pag.). The Fed is looking at slashing the interest rate by a full percent however, many economist believe that this is not the appropriate remedy for economic conundrum (Gavin, n. pag). According to many analysts, the issue of the economy regarding the mortgage is the lack of confidence by both the lender and the borrower. Even as the Fed resorts to drastic interest cuts, the first time the central bank has cut a full percentage point in one shot since 1982, this provides little help if lenders are not loaning money out of fear they will not be repaid and the borrowers…arrow_forwardThe economy is at full employment, with fairly low levels of unemployment and inflation. What is likely to happen to GDP, unemployment, interest rates, and inflation if: a) the government increases its surplus. b) the government increases its deficit. c) the government increases its surplus at the same time that the Fed is reducing the money supply. D) the government increases its deficit at the same time that the Fed is reducing the money supply. e) the government increases its surplus at the same time that the Fed is increasing the money supply.arrow_forward
- Predict how possible changes in monetary and/or fiscal policy may impact the supply and demand of the iPhone.arrow_forwardIf government spending were increased, what would occur to interest ratesarrow_forward14) During a period when economic growth is very strong and inflation rates are rising to uncomfortable levels, Federal Reserve policymakers might decide to pursue which type of monetary policy? 15) Which of the following pairs of terms is used to describe fluctuations in the economy? 16) During a contractionary phase of the business cycle which of the following most likely occurs? 17) Which of the following regulations prevent price gouging? 18) what does fiscal policy include?arrow_forward
- Will Increase in government spending financed by borrowing help promote a strong recovery from a severe recession? Why or why not?arrow_forwardThe central bank decided to raise interest rates when it wanted to reduce aggregate demand to fight inflation. How does an increase in interest rates reduce aggregate demand?arrow_forwardIn what ways does the Fed utilize their monetary policy tools to affect or counter-balance fiscal policy?arrow_forward
- Why would a central bank be concerned about persistent,long-term budget deficits?arrow_forwardAssume that the prevailing interest rate in this economy is 6%. If the central bank decides to reduce the interest rate to 4% then: (a) This is contractionary monetary policy action and the price of exports would increase; (b) This is expansionary monetary policy and exports would increase; (c) This is expansionary fiscal policy and imports will increase; (d) This is contractionary monetary policy and imports will decrease.arrow_forwardWhich policy should be more effective to use during recession to increase spending and borrowing, or decrease spending and borrowing during high inflation. Explain?arrow_forward
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