3.43 points Save Answer Question 1 An attempt to use government spending to boos
ID: 1219521 • Letter: 3
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3.43 points Save Answer Question 1 An attempt to use government spending to boost the economy may bring O inflation. O deflation. anarchy Ofiscal instability. 3.33 points Save Answer Question 2 , because An element of trust is built into money the government maintains a monopoly over the money supply, and O one must expect that it will still have value when the holder of money O people must trust that the government can always print more of it if O people must trust the Federal Reserve to prevent banks from failing people tend to trust monopolies. wants to spend it in the future necessary 3.33 points Save Answer Question 3 An increase in the GDP from a $1 cut in taxes is called Othe GSE (government spending effect) the tax multiplier Othe fiscal multiplier Othe base multiplier 3.33 pointsSave Answer Question 4 If tax cuts are stimulative, tax increases are O reactionary.Explanation / Answer
(1) Inflation
Boosting the economy requires increase in aggregate demand which causes demand to rise faster than aggregate supply, causing inflation.
(2) People expect money will have value even if spent in future (Money as a store of value).
(3) Tax multiplier
Tax multiplier = Change in GDP / $1 change in tax rate
(4) Contractionary
If tax cut is stimulative, lower tax rate raises aggregate demand, stimulating the economy, and in contrast, higher tax will reduce aggregate demand, causing a contraction.recession.
(5) Inflation may appear.
Lower federal funds rate will increase credit lending by banks causing higher money supply. If money supply rises, inflation increases.
(6) Businesses will find it easier to expand - this is wrong option.
(7) Demand curve will shift to left.
Higher federal funds rate will lower money supply, which will decrease aggregate demand & demand curve shifts left.
(8) Tax rate of which country is not mentioned.
(9) Higher government spending raises prices & wages (since aggregate demand rises, inflation rises).
(10) Fed announces inflation target & runs the reuqired monetary policy.
Note: First 9 questions are answered.
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