When the investment accelerator is large, expansionary fiscal policy is investment accelerator is small. likely to lead to a short-run increase in investment than when the Expansionary fiscal policy is more likely to lead to a short-run increase in investment when the interest rate sensitivity of investment is

When the investment accelerator is large, expansionary fiscal policy is investment accelerator is small. likely to lead to a short-run increase in investment than when the Expansionary fiscal policy is more likely to lead to a short-run increase in investment when the interest rate sensitivity of investment is

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter15: Fiscal Policy

Section: Chapter Questions

Problem 3SQ

See similar textbooks

Similar questions

Which of the following could NOT be contractionary fiscal policy tool? OA) decreasing government expenditure OB)decreasing taxes Oc) decreasing transfer payments
Which of these statements about automatic stabilisers is true? a) They eliminate the fluctuations associated with the business cycle b) They form part of discretionary fiscal policy c) They come into play as soon as aggregate demand fluctuates d) They eliminate fiscal drag
Several problems of timing may arise in connection with fiscal policy. Which of the following is not one of them? Select one: a. An administrative lag occurs due to a significant lag between the time the need for fiscal action is recognized and the time action is taken by a government. b. Operational lag also occurs between the time fiscal action is taken and the time that action affects output, employment, or the price level. c. Crowding out lag occurs since governments delay to take action for not to crowd out exports. d. The recognition lag is the time between the beginning of recession or inflation and the certain awareness that it is actually happening.
How do the instances when expansionary fiscal policy should be used compare with those for contractionary fiscal policy? Expansionary fiscal policy should be used during recessions to help build the economy and contractionary fiscal policy should be used when there is high inflation. Expansionary fiscal policy should be used to increase government revenue and contractionary fiscal policy should be used to increase consumer spending. Expansionary fiscal policy should be used to combat high inflation and contractionary fiscal policy should be used to increase government revenue. Expansionary fiscal policy should be used to decrease the unemployment rate and contractionary fiscal policy should be used when economic growth is too fast.
Please check the solution to (a) and (b) of the following problem for accuracy and elaborate: Given MPC (marginal propensity to consume) = 0.75, if the government implements an expansionary fiscal policy as (a) cutting taxes by $10 billion, then by how much would total spending increase over an infinite period? (b) spending $10 billion, then by how much would total spending increase over an infinite period? MPC = 0.75 Tax multiplier = (-MPC / 1) = (-0.75 / 1 – 0.75) = (-0.75 / 0.25) = -3. (a) Cutting taxes by $10 billion. The total spending increase by (-3) (-$10 billion) = $30 billion. Spending multiplier = (1/1 – MPC) = (1 / 1 – 0.75) = 1 / 0.25 = 4 (b) Spending 1ncrease by 10 billion. The total spending increase by (4) ($10 billion) = $40 billion.