The accompanying diagram shows two budget deficit functions for a hypothetical economy. Suppose the economy is at point A, the budget deficit function is Bo, and the level of potential output is $200 million. The structural budget deficit would be A. $14 million. B. $0. O C. $4 million. D. -$10 million. (...) Budget Surplus/Deficit (millions of dollars) 18 16- 12- चं 2 Ņ A 50 100 150 200 250 B₁ Real GDP (millions of dollars) 300 Bo

The accompanying diagram shows two budget deficit functions for a hypothetical economy. Suppose the economy is at point A, the budget deficit function is Bo, and the level of potential output is $200 million. The structural budget deficit would be A. $14 million. B. $0. O C. $4 million. D. -$10 million. (...) Budget Surplus/Deficit (millions of dollars) 18 16- 12- चं 2 Ņ A 50 100 150 200 250 B₁ Real GDP (millions of dollars) 300 Bo

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter30: Government Budgets And Fiscal Policy

Section: Chapter Questions

Problem 14SCQ: Explain how automatic stabilizers work, both on the taxation side and on the spending side, first in...

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'The U.S., world's largest economy, went into recession in February of 2020. It has taken a broad range of steps to combat the economic disruption caused by COVID-19. In response to this crisis, governments have enacted sweeping and sizable fiscal stimulus of trillions of dollars.' Is it an appropriate policy response if the primary responsibility of the government is to maintain economic growth? Explain the significance of Fiscal policy for an economy? Is there any difference in the two approaches of fiscal expansion through - direct transfer benefit and government spending directly on purchase of goods and services that may influence real GDP? What role does multiplier play? Explicate. Support your answer with the suitable diagram/s.
A. Calculate the levels of consumption and savings that occurs when the economy is in equilibrium. B. Computer the government budget deficit in this economy. C. If government spending in banana land increases by $1000 what is the amount of the increase in equilibrium output? D. If taxes in banana land decrease by $1000 what is the new equilibrium output in this economy? E. To keep the government budget balanced, of both government spending and taxes in banana land increase by $1000 what is the change in equilibrium income level?
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1. Fiscal Policya. Assume the Economy has an inflationary gap with above average price level, demonstrate this graphically and explain label the short run gdp with A.b. If the US has an MPC of 75% and the government decides to increase spending on social programs by $150 billion, what will happen to GDP (Y) and Price level (P) in the Short Run? Demonstrate and Explain. Label this point B.c. What Fiscal Policy should the Government implement (why?)? What Choices do they have? What will be the effects of this policy on the GDP? Demonstrate and Fully explain (hint: explain the steps as outlined in class)
The accompanying diagram shows two budget deficit functions for a hypothetical economy. 36- 32- Suppose the economy is at point A, the budget deficit function is Bo, and the level of potential output is $75 million. The structural budget A 28- deficit would be 24- 20- O A. $8 million. 16- B. $28 million. 12- C. $0. D. - $20 million. 4- 75 150 225 375 450 525 300 -8- B, Bo '1 -12- Real GDP (millions of dollars) Budget Surplus/Deficit (millions of dollars)
4. In the New-Keynesian model where government expenditure is financed through taxation only, if government expenditure increases by 100, which of the following is true? A. Income will increase by 100. B. Income will increase by more than 100 as the fiscal multiplier is greater than 1. C. Income will not change as the increase in government expenditure would crowd out private consumption. D. Income will increase, but we can't say by how much.
2. Assume a given economy has an equilibrium GDP of $360 billion. A. If government spending and taxes both increase by $40 billion, determine the new equilibrium GDP. B. If both G and taxes increase by $40 billion, what impact will these two changes happening at the same time have on the budget? In other words, will these two changes cause a surplus, a deficit, or a balanced budget? C. Solve for the numerical value of the balanced budget multiplier.