Homework Answers
Answer
Option 2
no effect on the current account because it does not affect
national saving.
National saving=Y-C-G
Y=GDP
C=consumption
G=govenment spending
The tax cut will not have any effect on the national saving and it will not change the current account.
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If Ricardian equivalence proposition is true, a budget deficit resulting from a tax cut will have Ono effect on governm...
5) The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut (Hint:...
5) The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut (Hint: look at page 26 of lecture slides in Lecture 7) A) causes inflation B) causes a current account deficit. C) raises interest rates. D) doesn't affect consumption 6) In the saving investment diagram, an increase in current output would A) shift the saving curve to the left B) shift the investment demand curve to the left. C) not shift the curves. D) shift the...
What is functional finance? A. A view that because the Ricardian equivalence theorem is true in...
What is functional finance? A. A view that because the Ricardian equivalence theorem is true in theory and practice, the government should not use deficit spending. B. A view that government should make spending and taxing decisions on the basis of their effect on the economy rather than concern itself with balancing the budget. ° C. A moral view that the government budget should always be balanced except in wartime. O D. A view that deficit spending will crowd out...
i understand why a decrease in tax will increaseconsumotion but i dont understand why a future...
i understand why a decrease in tax will increaseconsumotion
but i dont understand why a future tax raise will also increase
consumption.
in this case, does ricardian equivalence hold? thank you
6:41 PM Wed Oct 30 TODO+ Xaxes) may be advantageous because 54% + 8 0 A) it discourages credit-constrained consumers from borrowing too much. B) it increases the welfare of credit-constrained consumers. C) it eliminates the problems that cause credit market imperfections. D) it encourages more private savings. E)...
Assume that a government begins to run a large budget deficit. We might expect a simultaneous...
Assume that a government begins to run a large budget deficit. We might expect a simultaneous O A. surplus in the current account because of the inflow of capital needed to cover the budget deficit. OB. surplus in the capital account because of the outflow of capital to other countries. O C. deficit in the current account because of the fall in national saving O D. deficit in the capital account because of the outflow of capital to other countries...
1. The effect of the financial crisis of 2008–2009 on the real economy in the United...
1. The effect of the financial crisis of 2008–2009 on the real economy in the United States was a(n) _____ in aggregate demand, a(n) _____ in output, and a(n) _________ in the unemployment rate. decrease; decrease; increase decrease; decrease; decrease decrease; increase; increase increase; increase; increase 2. If the government balances its primary deficit every period I: the national debt will stay constant forever. II: the debt-to-GDP ratio will fall to zero as long as nominal GDP growth is...
In a closed economy, private saving is smaller than investment if government spending exceeds tax revenue....
In a closed economy, private saving is smaller than investment if government spending exceeds tax revenue. Select one: True False If there is a surplus of loanable funds, then neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium. Select one: True False An increase in the budget deficit would cause a shortage of loanable funds at the original interest rate, which would lead to falling interest...
14. (2 pt) Explain the effect of a discretionary cut in taxes of $40 billion on...
14. (2 pt) Explain the effect of a discretionary cut in taxes of $40 billion on the economy when the economy's MPC is .75. How does this discretionary fiscal policy differ from a discretionary increase in government spending of $40 billion? A tax cut of $40 billion will result in initial increase in consumption of S billion). (Note that $10Bil. is saved based on marginal propensity to save (MPS), that is 25 (because 1-MPC-MPS). Then .25 x $40-$10 billion). This...
Among the most important problems of implementing fiscal policy include all except which of the following?...
Among the most important problems of implementing fiscal policy include all except which of the following? Correctly timing the desired fiscal stimulus, given the inevitable lags and forecasting errors Determining how large a stimulus to apply Assessing when policy actions should be reversed Determining how long a time lag to apply If the central bank does not use accommodating monetary policy, a fiscal stimulus is likely to increase interest rates, which in turn, will cause planned investment to decrease. What...
Macroeconomics When taxes induce people to change their behaviour—such as inducing Jane to buy less pizza—the taxes cause deadweight losses and make the allocation of resources less efficient. As we have already seen, much government revenue comes from th
When taxes induce people to change their behaviour—such as inducing Jane to buy less pizza—the taxes cause deadweight losses and make the allocation of resources less efficient. As we have already seen, much government revenue comes from the individual income tax in many countries. In a case study in Chapter 8, we discussed how this tax discourages people from working as hard as they otherwise might. Another inefficiency caused by this tax is that it discourages people from saving.Consider a...
Please answer question a Question 2: The consumption function with taxes that change over time To...
Please answer question a
Question 2: The consumption function with taxes that change over time To do this question you need to be familiar with the Appendix to chapter 4, which deals with the determination of the two period consumption and is on the class website (see OnQ). Households must decide how much they wish to spend on consumption today ((1+1Jel) versus consumption in the future (0+τ)G), where t is the rate of taxation on consumption (HST). Households are constrained...
5) The Ricardian equivalence proposition suggests that a government deficit caused by a tax cut (Hint: look at page 26 of lecture slides in Lecture 7) A) causes inflation B) causes a current account deficit. C) raises interest rates. D) doesn't affect consumption 6) In the saving investment diagram, an increase in current output would A) shift the saving curve to the left B) shift the investment demand curve to the left. C) not shift the curves. D) shift the...
What is functional finance? A. A view that because the Ricardian equivalence theorem is true in theory and practice, the government should not use deficit spending. B. A view that government should make spending and taxing decisions on the basis of their effect on the economy rather than concern itself with balancing the budget. ° C. A moral view that the government budget should always be balanced except in wartime. O D. A view that deficit spending will crowd out...
i understand why a decrease in tax will increaseconsumotion
but i dont understand why a future tax raise will also increase
consumption.
in this case, does ricardian equivalence hold? thank you
6:41 PM Wed Oct 30 TODO+ Xaxes) may be advantageous because 54% + 8 0 A) it discourages credit-constrained consumers from borrowing too much. B) it increases the welfare of credit-constrained consumers. C) it eliminates the problems that cause credit market imperfections. D) it encourages more private savings. E)...
Assume that a government begins to run a large budget deficit. We might expect a simultaneous O A. surplus in the current account because of the inflow of capital needed to cover the budget deficit. OB. surplus in the capital account because of the outflow of capital to other countries. O C. deficit in the current account because of the fall in national saving O D. deficit in the capital account because of the outflow of capital to other countries...
14. (2 pt) Explain the effect of a discretionary cut in taxes of $40 billion on the economy when the economy's MPC is .75. How does this discretionary fiscal policy differ from a discretionary increase in government spending of $40 billion? A tax cut of $40 billion will result in initial increase in consumption of S billion). (Note that $10Bil. is saved based on marginal propensity to save (MPS), that is 25 (because 1-MPC-MPS). Then .25 x $40-$10 billion). This...
Please answer question a
Question 2: The consumption function with taxes that change over time To do this question you need to be familiar with the Appendix to chapter 4, which deals with the determination of the two period consumption and is on the class website (see OnQ). Households must decide how much they wish to spend on consumption today ((1+1Jel) versus consumption in the future (0+τ)G), where t is the rate of taxation on consumption (HST). Households are constrained...
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