Keynesian fiscal policy, Macroeconomics

Assume the economy has a GDP of $11,500 billion.  The unemployment rate is at 7.3% and has been slowly rising for the last 6 months.  Inflation was at 2.3% one year ago but has since dropped to near 0%.  The MPC in the economy is .75 and the Natural Rate of Unemployment is 5.0%.

a.   What problem is the economy currently facing?

b.   Is the problem serious enough that government should act to solve it?

c.   If the government does decide to act, what size government expenditure would fix the problem

d.   What size tax change would fix the problem?

e.   Why would it be better for government to solve the problem using government purchases (part c above) rather than taxes (part d above) to solve the problem?

f.    Assuming that government does decide to use the tax policy, what could happen to cause the policy to be ineffective?

 

Posted Date: 2/22/2013 5:31:03 AM | Location : United States







Related Discussions:- Keynesian fiscal policy, Assignment Help, Ask Question on Keynesian fiscal policy, Get Answer, Expert's Help, Keynesian fiscal policy Discussions

Write discussion on Keynesian fiscal policy
Your posts are moderated
Related Questions
If the price of a good rises, what are people likely to do? a Substitute a less expensive good b Buy more of the good c Buy more of all goods because of added buying power d All of

Q. Demand for money and GDP? The demand for money also relies on the GDP as GDP is closely associated to national income. If you choose to hold a fixed proportion of your wealt


As is the case with the supply and demand function for a single business firm determining the equilibrium price and output for its product, the aggregate supply and aggregate deman


The circular flow of income in a closed economy   A closed economy exists when there is no international trade. We shall also assume that in this particular closed economy there

Which of the following is assumed in constructing a typical production possibilities curve? a. the economy is engaging in international trade. b. production technology is fix

Determine the principle of equity The principle of equity is that a tax must be fair and the tax is levied on those with the ability to pay tax. The principle of efficiency

what is credit multiplir and how does it work

Explain the concept of elasticity and describe why the supply of petrol in the short run is relatively inelastic.