Keynesian fiscal policy, Macroeconomics

Assignment Help:

Assume the economy has a GDP of $11,500 billion.  The unemployment rate is at 7.3% and has been slowly rising for the last 6 months.  Inflation was at 2.3% one year ago but has since dropped to near 0%.  The MPC in the economy is .75 and the Natural Rate of Unemployment is 5.0%.

a.   What problem is the economy currently facing?

b.   Is the problem serious enough that government should act to solve it?

c.   If the government does decide to act, what size government expenditure would fix the problem

d.   What size tax change would fix the problem?

e.   Why would it be better for government to solve the problem using government purchases (part c above) rather than taxes (part d above) to solve the problem?

f.    Assuming that government does decide to use the tax policy, what could happen to cause the policy to be ineffective?

 


Related Discussions:- Keynesian fiscal policy

Determine the velocity of circulation, The demand for nominal balances rise...

The demand for nominal balances rises with the price level. At the similar time inflation causes the real demand for money to fall. Describe how these two assertions can be both co

Anti-trust legislation, Explain why anti-trust legislation supports a perfe...

Explain why anti-trust legislation supports a perfectly competitive market. Give at least one specific example of legislation to justify your explanation.

What causes a demand curve to shift, What causes a demand curve to shift? ...

What causes a demand curve to shift? a. Changes into the Prices of Related Goods Substitutes Complements b. Changes into Income Normal Goods Inferio

Unemployment, Suppose that between January 2011 and January 2012 the total ...

Suppose that between January 2011 and January 2012 the total number of people employed and the unemployment rate both fell. Briefly explain how this is possible. [2 marks]

Calculate the desired capital stock, Suppose that the desired capital stock...

Suppose that the desired capital stock is given as: K* = 0.3Y/i r Where Y = GDP, and i r is the real interest rate.  Suppose further that Y = $5 trillion and that i r

Electrical company audit indicates that motor consumption, An electrical co...

An electrical company audit indicates that motor consumption is 4x106 kWh per year. By upgrading to high efficiency motors a 10% savings can be made. The additional cost for the mo

Aggregate supply and demand, Aggregate Supply and Demand 1. The equati...

Aggregate Supply and Demand 1. The equation for expenditure GDP is 2. Sketch a fully labeled aggregate supply and demand diagram for an economy that is in full employment equ

Kernel density estimator to plot the two densities, The data is posted on B...

The data is posted on Blackboard. Download the data lfs4.dta on your personal computer. This data is from the Labour Force Survey 2003. In STATA, add enough memory to open the data

Allocate their scarce resources, What are the three methods that societies ...

What are the three methods that societies have used to allocate their scarce resources? Give an example of each method. Give an example of a good that uses all three methods at onc

Illustrate about perfectly competitive market firm, Why might a perfectly ...

Why might a perfectly competitive market firm be willing to run at a loss in the short run? The assumptions of a PCM firm should be outlined in order to end that the PCM firm i

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd