Suppose that the government announces that it plans to balance the budget. Would you expect households and firms to be in favor of this plan?
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Suppose that the government announces that it plans to balance the budget. Would you expect households...
2. Suppose the government announces that it will reduce taxes for one year with no change in government spending. Describe the effect of the temporary tax cut on output (Y), consumption (C), investment (I), and net exports (X) for each of the following assumptions about household consumption behavior. Explain your answers. a. Household follow the simple Keynesian consumption function. b. Households are forward-looking but do not anticipate a future tax hike which would completely offset the current tax reduction. c....
QUESTION 1 Suppose that the behavior of households, firms and the government in an economy is determined by the following equations: C-180+0.75Y 1150 G-55 T-90 TWR30 The full employment level of output in the economy is: YFE 1200 Find an expression for aggregate expenditure (This should take the form of AE - abY, where a and b are numbers) il. What is the equilibrium level of output? YE = ill. What is the government spending multiplier in this economy? iv....
Many people believe that the Federal Government should balance its annual budget just like households, businesses, and state and local government bodies. Explain why this might be a bad idea. Be sure to explain how fiscal policy affects the economy. Remember to include a reference about a cyclically adjusted budget.
QUESTION 2 Suppose that the behavior of households, firms and the government in an economy is determined by the following equations: C-30+0.75Yd 11-30 G-75 7. 20+0.2Y TR-40 The full employment level of output in the economy is: YFE=400 Find an expression for aggregate expenditure (This should take the form of AE = a +by, where a and are numbers) II. What is the equilibrium level of output? YE ill. Calculate the level of taxes in this economy. T = iv....
1. A rule that the government must balance the cyclically adjusted budget would I: allow the government to carry on a limited countercyclical fiscal policy. II: keep the debt-to-GDP ratio from rising in the long run. Both I and II are true. I is true; II is not. II is true; I is not. Neither I nor II is true. 2. To the extent that mortgage defaults contributed to the financial crisis of 2008–2009 in the United States, blame...
If the federal government was required to balance its budget, when would government spending most likely decrease? Select one: a. When employment was rising rapidly for an extended period of time b. When unemployment was declining for an extended period of time c. When the economy was experiencing a strong expansion due to high business confidence d. When the economy was experiencing a demand pulled inflation e. A balance budget amendments ensures that government spending never decrease Suppose that the...
II. Consumption, Saving and Government Budget again Now the economy is doing very strong, and we can assume it is under full employment (long run) equilibrium. However, suppose households are uncertain about what events and policies may lie ahead, and decide to cut back consumption spending. (1) What short run and long run impacts would you expect this increased saving (decreased consumption) have on the economy, specifically on output (Y), price level (P), inflation (∏), real interest rate (r), nominal...
You would expect a bond of an Eastern European government to pay interest rate as compared to a bond of the U.S. government. You would expect a bond that repays the principal in year 2040 to pay interest rate as compared to a bond that repays the principal in year 2020. You would expect a bond from a software company you run in your garage and a bond from Coca-Cola to pay different interest rates because of differences in the...
When the Federal Reserve purchases government treasury bonds from commercial banks, we can expect interest rates in the economy to _______. As a result, spending by firms and households is likely to _______.
The government budget balance is the... Difference between government outlays and tax revenues Change in the government debt that results from changes in fiscal policy The budget balance that arises because Real GDP differs from Potential GDP The budget balance that occurs when the economy is at full employment