The economy is in a recession. The government increases spending in an effort to move the...
- The economy is in a recession. The government increases
spending in an effort to move the economy toward full employment
(Y*). Money demand is interest sensitive and investment is interest
insensitive.
- explain each step of the adjustment process,
- graph the process (show both “the crowing out” and the path –process– the economy will follow).
- How much crowding out would you expect relative to an economy wherein Money demand is interest insensitive and investment is interest sensitive and why.
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The economy is in a recession. The government increases
spending in an effort to move the...
1. If the economy is at full employment, increases in government spending: A) have a multiplier...
1. If the economy is at full employment, increases in government spending: A) have a multiplier effect on equilibrium output. B) have no effect on the aggregate price level. C) are primarily absorbed by price increases. D) reduce aggregate output. 2. Which of the following measures is NOT an example of discretionary fiscal policy? A) The unemployment compensation program pays out more money as unemployment rates rise. B) Tax rates are increased in the hope of slowing down the rate...
(11) The amount by which annual government spending exceeds annual government tax revenue is called the...
(11) The amount by which annual government spending exceeds annual government tax revenue is called the deficit. the debt. the dividend. M1. (12) Suppose a law was passed to authorize more spending on roads, but several months later the first dollar had not been spent. This delay is an example of a(n) recognition lag. political lag. administration lag. operational lag. (13) Which of the following is an example of an unintended effect of fiscal...
The government of Pangea, a small open economy with a flexible exchange rate, has increased government...
The government of Pangea, a small open economy with a flexible exchange rate, has increased government spending by $20 billion. Economists argue that after the crowding-out effect on investment and the crowding-out effect on net exports, the increases in government spending will not affect aggregate demand. Arrange each statement in the proper sequence of events from first to last, to illustrate the reasoning behind this argument. First reduction in net exports due to the appreciation of the domestic currency increased...
(1) Which of the following is not a tool of fiscal policy? Government spending Taxes Tax...
(1) Which of the following is not a tool of fiscal policy? Government spending Taxes Tax incentives Private investment (2) Which of the following statements helps to explain why the economy can be slow to recover from a recession? Workers are less motivated because of reduced expectations, which reduces total output. There is not as much money in circulation to fuel new investment. Wages do not fall quickly, which delays an adjustment to a higher output level....
(6) Imagine that the economy is in a recession. Which one of the following tactics is...
(6) Imagine that the economy is in a recession. Which one of the following tactics is a way to increase output by shifting aggregate demand outward? Raising taxes to increase the government surplus Increasing government spending Increasing the required reserve ratio Imposing tariffs on foreign goods (7) In the short run, supply shocks cause prices to __________ and the quantity demanded to __________. increase; increase increase; decrease decrease; increase decrease; decrease (8) Good deflation...
If the federal government decreases spending or increases taxes, the goal is to move the AD...
If the federal government decreases spending or increases taxes, the goal is to move the AD curve to the left/right and would be done to fight a recession/inflation; If the federal government increases spending or decreases taxes, the goal is to move the AD curve to the left/right and would be done to fight a recession/inflation.
1. To stimulate economic activity during a severe recession, the strongest appropriate fiscal policy is: a....
1. To stimulate economic activity during a severe recession, the strongest appropriate fiscal policy is: a. an increase in taxes and/or an increase in government spending b. an increase in taxes and/or a decrease in government spending! c. a decrease in taxes and/or an increase in government spending d. a decrease in taxes and/or a decrease in government spending e. a decrease in government purchases and/or a decrease in transfer payments 2. An increase in income tax rates: a. makes...
If government spending increases then, given the real interest rate, Question 16 options: 1) the demand...
If government spending increases then, given the real interest rate, Question 16 options: 1) the demand for goods increases more than one-for-one. 2) the demand for goods increases less than one-for-one. 3) the demand for goods is unchanged, due to crowding out. 4) the demand for goods increases one-for-one. 5) the demand for goods doubles.
If the government is required to balance the budget and the economy falls into a recession,...
If the government is required to balance the budget and the economy falls into a recession, which of the actions is a feasible policy response? O invest in infrastructure O increase government spending to stimulate the economy O cut taxes to encourage consumer spending O cut spending equal to the reduction in tax revenue What is a likely consequence of this policy? The negative consequences of the recession are magnified. Unemployment falls due to the economic stimulus. There is hyperinflation...
1. Which of the following is true regarding spending and saving? a. Money that is spent...
1. Which of the following is true regarding spending and saving? a. Money that is spent cannot be saved. b. Spending is good for the economy; saving is bad for the economy. c. Spending money on items that are on sale is the same as saving money. d. Saving money and spending the same dollars has become easier with online banking. 2. If savers were to decrease the level of savings in an economy, what would happen in the loanable...
1. If the economy is at full employment, increases in government spending: A) have a multiplier effect on equilibrium output. B) have no effect on the aggregate price level. C) are primarily absorbed by price increases. D) reduce aggregate output. 2. Which of the following measures is NOT an example of discretionary fiscal policy? A) The unemployment compensation program pays out more money as unemployment rates rise. B) Tax rates are increased in the hope of slowing down the rate...
The government of Pangea, a small open economy with a flexible exchange rate, has increased government spending by $20 billion. Economists argue that after the crowding-out effect on investment and the crowding-out effect on net exports, the increases in government spending will not affect aggregate demand. Arrange each statement in the proper sequence of events from first to last, to illustrate the reasoning behind this argument. First reduction in net exports due to the appreciation of the domestic currency increased...
1. To stimulate economic activity during a severe recession, the strongest appropriate fiscal policy is: a. an increase in taxes and/or an increase in government spending b. an increase in taxes and/or a decrease in government spending! c. a decrease in taxes and/or an increase in government spending d. a decrease in taxes and/or a decrease in government spending e. a decrease in government purchases and/or a decrease in transfer payments 2. An increase in income tax rates: a. makes...
If the government is required to balance the budget and the economy falls into a recession, which of the actions is a feasible policy response? O invest in infrastructure O increase government spending to stimulate the economy O cut taxes to encourage consumer spending O cut spending equal to the reduction in tax revenue What is a likely consequence of this policy? The negative consequences of the recession are magnified. Unemployment falls due to the economic stimulus. There is hyperinflation...
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