MACROECONOMICS FOR TODAY
10th Edition
ISBN: 9781337613057
Author: Tucker
Publisher: CENGAGE L
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Question
Chapter 8, Problem 3SQ
To determine
The Keynesian recommendation for less than full employment equilibrium.
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Students have asked these similar questions
To combat a recession, the Keynesian fiscal policy recommends the Government:
Select one:
a. Increases taxes and decreases government spending to balance the budget.
b. increases government spending and reduces taxes.
c. increases taxes.
d. reduces both taxes and government spending.
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…
Our macroeconomic model suggests that after a decline in aggregate demand like that of 2007, the economy will self correct and return to a position where the GDP gap is zero. If this is correct, why should the government ever intervene with fiscal policy?
a.
It take many years for the GDP gap to close on its own.
b.
This is part of the government's "mission statement" as given in the Constitution.
c.
Fiscal policy is profitable for banks.
d.
People do not trust the theory behind the model.
Chapter 8 Solutions
MACROECONOMICS FOR TODAY
Ch. 8.4 - Prob. 1YTECh. 8 - Prob. 1SQPCh. 8 - Prob. 2SQPCh. 8 - Prob. 3SQPCh. 8 - Prob. 4SQPCh. 8 - Prob. 5SQPCh. 8 - Prob. 6SQPCh. 8 - Prob. 7SQPCh. 8 - Prob. 8SQPCh. 8 - Prob. 9SQP
Ch. 8 - Prob. 1SQCh. 8 - Prob. 2SQCh. 8 - Prob. 3SQCh. 8 - Prob. 4SQCh. 8 - Prob. 5SQCh. 8 - Prob. 6SQCh. 8 - Prob. 7SQCh. 8 - Prob. 8SQCh. 8 - Prob. 9SQCh. 8 - Prob. 10SQCh. 8 - Prob. 11SQCh. 8 - Prob. 12SQCh. 8 - Prob. 13SQCh. 8 - Prob. 14SQCh. 8 - Prob. 15SQCh. 8 - Prob. 16SQCh. 8 - Prob. 17SQCh. 8 - Prob. 18SQCh. 8 - Prob. 19SQCh. 8 - Prob. 20SQ
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- Which of the following is not an example of government spending hike that will increase aggregate demand? Answers: A. Unemployment compensation. B. Government purchase of new military jet fighters. C. The construction of a new highway. D. Government purchase of new health care plan for retirees.arrow_forwardThe use of government purchases (G) as a fiscal policy tool can have an effect on long-run growth in the economy. Under what circumstances might an increase in G cause the level of potential output (Y*) to increase? A. If the increase in G causes a permanent increase in the marginal propensity to consume, which causes a permanent rightward shift of the AD curve. B. If the increase in G is offset by an equal decrease in C, I, and NX. C. If the increase in G crowds out private investment. D. If the increase in G leads to a permanent increase in the level of autonomous saving in the economy. E. If the increase in G is spent on public infrastructure that increases the productivity of private-sector production.arrow_forwardAccording to traditional Keynesian analysis, a tax cut has a larger effect on aggregate demand than an increase in government expenditures of the same size. a.true b.falsearrow_forward
- Which of the following statements do economists NOT agree on? a. Increases in the money supply shift aggregate demand to the right. b. In the long run, increases in the money supply increase prices, but not output. c. Recessions are associated with decreases in consumption, investment, and employment. d. Government should use fiscal policy to try and stabilize the economy.arrow_forwardThe 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.arrow_forwardIn AD / A * S analysis, fiscal policy affects the economy through: A. Both the AS and AD curves. B. The AS curve. C. The AD curve. D. Neither the AS nor the AD curves. E. Fiscal policy doesn't affect the economy in AS/AD analysis. Give correct answer and also why other options is Incorrect.arrow_forward
- The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it a. reduces investment and thereby increases consumer spending. b. increases the money supply and thereby reduces interest rates. c. increases income and thereby increases consumer spending. d. decreases income and thereby increases consumer spending.arrow_forwardThe outbreak of COVID-19 pandemic in 2020-21 has had a significant impact on the Australian economy. a) What is the the short-run equilibrium impact on inflation and output of the lockdown that governments imposed? Explain using the AS-AD model with graphs The Australian government implemented fiscal stimulus aimed at supporting households and businesses. b) Describe the key elements of the fiscal stimulus.arrow_forward50 ts 00:30:41 Print During the Great Depression, Keynes advocated the use of Multiple Choice O monetary; aggregate demand for fiscal; aggregate demand for monetary, aggregate supply of fiscal; aggregate supply of policy to increase the goods and services.arrow_forward
- Solve it steps by steps explanation handwriting allarrow_forwardSuppose the federal government observes an increase in gross investment. Examine this event in terms of the aggregate demand and aggregate supply model. a. The increase in gross investment will cause (Click to select) b. This will lead to [(Click to select) in the price level and [(Click to select) in real GDP. c. (Click to select) fiscal policy will be used to (Click to select) d. The fiscal policy actions may include (Click to select) in taxes and/or (Click to select) in government purchases. 4arrow_forwardNow consider an economy in which the government lowers its spending. In the long run, the result would be _____________ in the price level and _____________ in real output. an increase; an increase a decrease; no change a decrease; a decrease None of the listed options is correct. no change; a decreasearrow_forward
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