Taxes are affected by the level of economic activity: When output increases, tax revenues typically increase, when output falls, tax revenues fall. Suppose a balanced- budget amendment is passed by Congress, which requires that the budget always be balanced. Further assume that the economy is initially operating at its natural level of output and that the budget is currently balanced

a.  Now suppose consumer confidence declines. What effect will this have on the IS Curve (graph and explain), on the AD curve (graph and explain), output, tax revenues and on the budget?

b.  Given that we now have a balanced- budget amendment, what will policymakers have to do in this situation?

c.  Based on your answers in "a" and "b", what effect does the existence of a balanced-budget amendment have on the output effects of any shock to aggregate demand?

d. Based on your analysis in question "c", what happens to the fluctuations in output caused by shocks to aggregate demand in the presence of a balanced-budget amendment?

 

Posted Date: 3/5/2013 6:08:37 AM | Location : United States

Ask an Expert

Related Discussions:- Explain is curve and ad curve graph, Assignment Help, Ask Question on Explain is curve and ad curve graph, Get Answer, Expert's Help, Explain is curve and ad curve graph Discussions

Write discussion on Explain is curve and ad curve graph
Your posts are moderated

Write your message here..

Related Questions

How to deal with this problem?, How to create account for barter transactio... How to create account for barter transactions? As My Company is providing a service to another company and that company is reimbursing us with his service.

Acc 206 Week Two Assignment, #Please complete the following 7 exercises bel... #Please complete the following 7 exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculatio

Cash flow information: direct and indirect methods, Cash flow information: ... Cash flow information: Direct and indirect methods The comparative year-end balance sheets of Sign Graphics, Inc., revealed the following activity in the company's current accou

Unadjusted trial balance, it wont balance it wont balance

Assets, wat is assets and its types? wat is assets and its types?

Common size financial statements, Common size Financial Statements:   ... Common size Financial Statements:   Below this process, the total of the tasks side and the total of the possessions side of a Balance Sheet are taken as 100 and each item in

Calculate current ratio, Compute each of the following amounts Company repo... Compute each of the following amounts Company reported current assets of $80,000, non-current assets of $350,000, current liabilites of $32,000 and long term liabilities of $120,00

Describe the accounting procedures, Q. Describe the accounting procedures? ... Q. Describe the accounting procedures? The demand for college professors differ greatly by discipline. In fields such like Fine Arts, English, Philosophy and Psychology there i

Partnership act, If partners do not draw up a partnership agreement, the pr... If partners do not draw up a partnership agreement, the provisions of the Partnership Act apply on which statement is true like a provision of the Partnership Act? A Interest on

Trading profit & loss, trial balance as at may 31 19*6 ... trial balance as at may 31 19*6 dr cr sales 400000 purchases 350000 sales return 5000 purchases return