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.
You are the Secretary of the Treasury, working with the president to implement appropriate policies. Currently, actual GDP is below potential output and falling. To stabilize the economy, you'd recommend fiscal policy, which could include a. expansionary; increased government purchases and tax cuts b. expansionary; decreased government purchases and a tax increase c. contractionary; increased government purchases and tax cuts d. contractionary; decreased government purchases and a tax increase
Identify each scenario as an example of expansionary fiscal policy, contractionary fiscal policy, or not an example of
fiscal policy.
a. An increase in the money supply is
b. A decrease in taxes is
fiscal policy.
not an example of
fiscal policy.
a contractionary
an expansionary
d. An increase in tax rates is
c. A decrease in the unemployment rate is
fiscal policy.
fiscal policy.
f. A decrease in the money supply is
e. A decrease in government spending is
fiscal policy.
fiscal policy.
h. An increase in corporate bonds purchased is
g. A decrease in transfer payments is
fiscal policy.
fiscal policy.
i. An increase in government spending is
fiscal policy.
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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Similar questions
- 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.arrow_forwarda. 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…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_forward
- 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_forwardIdentify one fiscal policy action that could counter the increase in investments. Explain how this policy will affect each of the following.i. Output ii. The price level iii. Nominal interest ratesarrow_forwardGovernment spending on unemployment benefits, welfare, Medicare, and other programs during a recession are known as a. social safety nets (automatic stabilizers) that limit the hardships created by a deflationary gap b. additional expenditures the government should not have to pay c. social safety nets (automatic stabilizers) that increase the hardships created by a recession d. social safety nets (automatic stabilizers) that limit the hardships created by an inflammatory gaparrow_forward
- 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.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_forwardIn order to boost the economy, the government should implement expansionary fiscal policy by A) increasing the government spending and increasing the taxes. B) increasing government spending and cutting the taxes. C) decreasing government spending and cutting the taxes. D) increasing the government spending and cutting the Overnight Policy Rate.arrow_forward
- In 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_forwardWhich 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 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_forward
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