Suppose the federal budget is balanced but that automatic stabilizers increase t

Question

Suppose the federal budget is balanced but that automatic stabilizers increase tax revenues by $60 billion per year and decrease transfer payments (e.g., welfare, unemployment benefits) by $20 billion per year for every 1 percentage point change in the real GDP growth. Using this information, complete the following table:

Instructions: If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

Monetary stimulus in the form of lower interest rates is an alternative to the fiscal stimulus. If a 0.1 point change in interest rates has the stimulus impact of $10 billion in spending, what is the monetary equivalent of a $800 billion spending stimulus?

point change.

Change in GDP Growth Rate Change in Tax Revenue Change in Transfer Payments Change in Budget Balance -2 % billion billion billion 3 % billion billion billion 4 % billion billion billion

Explanation / Answer

following is filled up table:

0.1 fall in interest leads to 10 billion stimulus

8 % fall in rate of interest shall lead to 800 billion stimulus.

Change in GDP Growth Rate Change in Tax Revenue Change in Transfer Payments Change in Budget Balance -2 % -120 billion 40 billion -160 billion 3 % 180 billion -60 billion +240 billion 4 % 240 billion -80 billion +320 billion

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