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

How can we determine fixed exchange rate, How can we determine fixed exchan...

How can we determine fixed exchange rate If a nation has a fixed exchange rate (say against a specific currency), the government or central bank may change this fixed exchange

Process to calculate gross domestic product, process to calculate gross dom...

process to calculate gross domestic product We just include finished goods and services - which is, anything that is sold directly to consumer. Electric power sold to a steel m

Macroeconomics policy, explanations to the short-run fluctuation and pilicy...

explanations to the short-run fluctuation and pilicy prescriptions of the schools macroeconomics thought

Monetary policy, what is the importance of credit multiplier

what is the importance of credit multiplier

Explain the term unit labor costs, An article published in Die Zeit on 25 M...

An article published in Die Zeit on 25 March 2010 analyses the German policy that allows for only moderate increases in wages. According to this article, the unit labor costs in Ge

Demand for green and chai tea, Given the data in the table below, provide a...

Given the data in the table below, provide an estimate of the arc price elasticity of demand for green and chai tea. Chai tea Price $/lb. 10.4, 10.5 Chai tea Quantity mil lbs. 75

Quality of health care, Explain how changes in the quality of health care w...

Explain how changes in the quality of health care will influence the demand for care.

Explain augmented saving, Augmented Saving An alternative way of determ...

Augmented Saving An alternative way of determining equilibrium  GDP  is to find the level of income where the sum of desired injections equals the sum of desired leakages. Desi

Explain the gains from trade of market, Explain the Gains from Trade of mar...

Explain the Gains from Trade of market. Producer Surplus, Consumer Surplus, Gains through Trade and Efficiency of Markets: Consumers and producers both are better off since

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