ECON 214 InQuizitive ch. 16 Liberty University Solution

Monetary policy and fiscal policy are two different tools used by – to influence the economy. Monetary policy concerns using the national – to affect the economy, while fiscal policy uses – and expenditures in the government’s –.

Place in chronological order the lag phenomena associated with the use of fiscal policy to smooth business cycles.

The figure shows a drop in aggregate demand that, without government action, will be followed by an increase in aggregate supply. Match each label from the figure to the corresponding description.

Fiscal policy is usually intended to influence aggregate demand (AD) rather than short- or long-run aggregate supply (SRAS and LRAS, respectively).

The Laffer curve models – as a function of a single –. In a progressive scheme, one has to look separately at the revenue from different segments of taxpayers, corresponding to different rates. The data in the table suggests that tax cuts in the early 1980s led to – revenue from lower-income taxpayers but – revenue from the highest-income taxpayers. This would mean that reductions in the – rate, at least, made fiscal sense.

Assume the government has established countercyclical fiscal policies to reduce the severity of its economy’s business cycle fluctuations. Click on the periods during which a contractionary fiscal policy is in effect.

John F. Kennedy was endorsing – fiscal policy when he declared that lowering the top marginal income tax rate, then at –, would not only be expansionary but also lead to more government –.

If the marginal propensity to consume is 0.80, what is the total implied increase in economic spending activity from a government stimulus of $100 billion?

Suppose the government has a balanced budget and wants to increase spending without changing tax rates. The government enters the loanable funds market to borrow $150 billion for economic stimulus spending. How much money is available for private investment after this action has shifted the demand curve as shown in the figure?

Assume the economy is currently producing at short-run equilibrium point A. In fear that the economy is expanding beyond its long-run capabilities, government officials decide to raise taxes. Click on the equilibrium point that results from this fiscal policy decision.

Expansionary fiscal policy used during economic downturns inevitably leads to a budget –. Suppose the government responds to the downturn by increasing government spending by $250 billion, but keeps tax rates the same. In this scenario, the – will rise by – $250 billion. In a recession, – falls and – rises, which means tax revenues will – even if tax rates do not change.

For each region of the Laffer curve, select the policy that will increase tax revenue. If no increase is possible, select that description.

A worker gets a raise of $120 per month and quickly decides to spend $90 of the money on necessities and the occasional luxury, while putting the remaining $30 into retirement savings. Based on this decision, calculate the worker’s marginal propensity to consume, or MPC, as a decimal.

Government borrowing to fund economy-boosting projects is self-defeating, since crowding-out will completely cancel out the benefits of the policy.