computations from above to justify your answer. 4) Explain the differences betwe
ID: 1112636 • Letter: C
Question
computations from above to justify your answer. 4) Explain the differences between typical demand side fiscal policy and supply side fiscal policy. For each of the following fiscal policy proposals, determine whether the primary focus is on aggregate demand or aggregate supply or both. a. A $1000 per person tax reduction. b. A 5% reduction in all tax rates. c. Pell grants, which are government subsidies for college education. d. Government sponsored prizes for new scientific discovery. e. An increase in unemployment compensation.Explanation / Answer
Fiscal policy involves spending and taxation by the government. Supply side economics is “trickle down” economics and seeks to increase production of goods and services.
Aggregate Demand is made up of Consumer Spending + Government Spending + Investment + Net Exports (exports-imports). Fiscal policies which affect aggregate demand are demand-side fiscal policies.
A $1000 per person tax reduction.
Aggregate demand. Lower taxes will stimulate demand.
A 5% reduction in all tax rates.
Both aggregate supply and aggregate demand. Lower taxes will increase production of goods and services on the supply side and similarly lower taxes in the hands of consumers will stimulate demand.
Pell grants, which are government subsidies for college education.
Aggregate supply as education will improve workers skills and increase production.
Government sponsored prizes for new scientific discovery.
Aggregate supply, because this will lead to increase in production of goods and services.
An increase in unemployment compensation.
Aggregate demand because this will increase the money supply in the hands of the population.
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