1) fiscal policy is most effective when: there are many unemployed resources 2)
ID: 1157512 • Letter: 1
Question
1) fiscal policy is most effective when:
there are many unemployed resources
2) What can happen when a government continues to use expansionary fiscal policy even as government debt becomes a problem?
The interest rate on government debt is likely to fall.
3) A decrease in consumption growth will cause the long-run aggregate supply (LRAS) curve to:
first shift outward and then shift inward.
4) If the goal of a government policy change is to increase the incentive for taxpayers to work and/or invest, which policy is most likely to be successful?
An increase in interest rates.
5) Because of the multiplier effect, if a shock causes aggregate demand (AD) to increase by $200 million, then the government should _______ in order to restore the economy back to its original growth rate.
interest rates are high.Explanation / Answer
1) Fiscal policy is related to making changes in government expenditure and revenues to have desired results in economy. It is most effective in deep recession. Recession implies when the money supply falls steeply. hence when the "money supply is falling" is correct answer.
2) when a government continues to use expansionary fiscal policy even as government debt becomes a problem then wit hmore debt the crowding out effect effect may take place which may make the real gdp inconsistent. Thus Real growth can be inconsistent.
3) A decrease in consumption growth will cause the long-run aggregate supply (LRAS) curve to "Remain unchanged". The LRAS supply curve represents the potential output that could be generated using the full employment if resoutrces.
4) TAx rebates gives taxpayers handed a check which does not induce them to work/invest. However marginal tax cut that is cut in additional tax that is paid on additional earned income gives incentive to work/invest by the taxpayers. Thus A decrease in marginal tax rates. is correct.
5) Multiplier = K = Change in Output / change in government spending
Generally becaus eof multiplier effect the lesser would be required to offset the shock. INcrease in AD would be offset by decrease in government spending by less than 200.
Option "reduce government spending by less than $200 million." is correct.
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