Assume that initially the goods and services market

Reference no: EM1335830

Keynesian cross diagram

Assume that initially the goods and services market is in equilibrium at the potential (full-employment level) of output and that the government budget is balanced, that, is government spending equals tax revenues.
a. Now suppose that because of headwinds from a credit crunch, consumption and investment fall. Also suppose that the government does not change its spending or taxation policies. What will be the effect on the budget gap, that is, on the difference between government spending and tax revenues? Explain.
b. Suppose that the government has a law that the budget must be balanced at every level of income. How must it respond to the credit crunch? Is this a good law? Explain and illustrate graphically with a Keynesian cross diagram.

Reference no: EM1335830

Questions Cloud

Define problem with criteria range : problem with criteria range. I do not know how to set two different criterias in one column. I need to ADVANCE FILTER all of the Clerks (1 and 2) and the Sect. 1 workers who create more than $5.50/hr. I do not understand how to set the title crite..

Illustrate what does the term recession mean : Illustrate what does the term "Recession" mean and how do we know when one occurs. How does government intervene to move the economy out of a recession.

Prepare an article abstract : Prepare an abstract that is a comprehensive summary of the content of an article and It should be non-evaluative. That is, not to critique the article.

Explain qualitative vs quantitative marketing research : Explain Qualitative vs Quantitative Marketing Research and Many marketing researchers have their favorite research approaches

Assume that initially the goods and services market : Assume that initially the goods and services market is in equilibrium at the potential

Patent law in downloading music or vedios : What is the concept of the issue in downloading music or videos according to patent laws?

The use of a new predictor : The use of a new predictor

Internal organizational structure at the time of emergency : What elements of concern do you need to plan for, and what new/modified internal organizational structure do you recommend to take place at the time of emergency or any disaster mishap?

Utilize the heckscher-ohlin and factor proportions framework : Utilize the Heckscher-Ohlin and factor proportions framework with two factors, skilled and unskilled labor.

User Account

All Pages