Keynes argued that the economy could get stuck at a point like point A in the above graph. An appropriate fiscal policy option to move the economy to full employment is to increase government spending and move the economy to a full-employment equilibrium at point b. decrease decrease An economy is at a short-run equilibrium as illustrated in the above figure. This will _ aggregate demand and will likely _ real GDP and employment. The nation of Hyperbole is in a recession, and the government decides to increase taxes and reduce government spending to reduce the growing deficit. Automatic stabilizers are defined as policy that stabilizes without the need for action by the government. A decrease in taxes should be applied in a situation with a recessionary gap. The amount by which government expenditures exceed revenues during a particular year is the budget deficit. decrease rise falls When an economy faces an inflationary gap, an appropriate policy would be to decrease government purchases. An economic expansion tends to cause the federal budget deficit to _ because tax revenues _ and government spending on transfer payment _. Gleck's argument is an example of the broken window fallacy. economy as it will create jobs for those involved in the clean up and reconstruction, and thus increase the amount of employment in the U.S. Suppose that Ben Gleck, a news analyst on the Coyote News Network, Argues that the tornado, while tragic, will have a positive impact on the U.S. decreases decreases It is estimated that the tornadoes in Alabama earlier this year caused $645 million of damage in Jefferson County, Alabama alone. Decreasing government spending _ the price level and _ equilibrium real GDP in the short run. Government budget deficits are mostly likely to increase during economic recession During a recession, what automatically happens to the government's budget situation? tax revenues fall, government spending increases, and the budget deficit gets larger. The stimulus strategy behind tax cuts will only be effective in Ricardian equivalence fails to hold, and people increase their spending. During recession, government expenditures automatically rises, because of programs such as unemployment insurance and Medicaid. increase decrease What is a benefit of giving the government freedom to spend more than they receive in taxes and run a deficit? It allows the government to be flexible if something unexpected happens. larger smaller An increase in government spending causes interest rate to _, which causes investment spending to _. The presence of automatic stabilizers means that the federal budget deficit is _ than it otherwise would be in a recession and _ than it otherwise would be in an expansion. government generally finances its debt by selling U.S. increase increase If there are multiple effects, then an increase in government purchases of $200 billion will shift the aggregate demand curve to the right by more than $200 billion The U.S. Which of the following is INCORRECT regarding tax revenues they increase during recessions Assuming the economy is represented by the graph shown, if the government were to enact a partially successful expansionary fiscal policy, it would be most likely to move from equilibrium Increase government spending is an example of expansionary fiscal policy In the short run, expansionary fiscal policy _ the price level and _ equilibrium real GDP. A lack of understanding regarding the current state of the economy creates an information lag One reason the government enacts fiscal policy instead of waiting for the economy to correct itself is the automatic adjustment can take a very long time.
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