With respect to the economy depicted in the graph below: a b C Price Level (P) d P₁ Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. SRAS AD₁ 800 920 Real GDP = Q($billions) Keynes would argue in favor of using discretionary expansionary fiscal policy to increase aggregate demand. Keynes would argue that discretionary fiscal policy is likely to lead to an increase in aggregate demand that will be offset by a decrease in aggregate supply. the classicals would argue that a policy of laissez-faire should be adhered to because the economy will automatically adjust to close the inflationary gap. the classicals would argue in favor of using both nondiscretionary and discretionary fiscal policy to stimulate economic activity.

With respect to the economy depicted in the graph below: a b C Price Level (P) d P₁ Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. SRAS AD₁ 800 920 Real GDP = Q($billions) Keynes would argue in favor of using discretionary expansionary fiscal policy to increase aggregate demand. Keynes would argue that discretionary fiscal policy is likely to lead to an increase in aggregate demand that will be offset by a decrease in aggregate supply. the classicals would argue that a policy of laissez-faire should be adhered to because the economy will automatically adjust to close the inflationary gap. the classicals would argue in favor of using both nondiscretionary and discretionary fiscal policy to stimulate economic activity.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter11: Fiscal Policy And The Federal Budget

Section: Chapter Questions

Problem 17QP

See similar textbooks

Similar questions

Briefly discuss how time lag could be an argument against policy activism. What is the role of automatic stabilizer in this context? Explain with examples
What is fiscal multiplier?
In a recession spending is Krugman (who is a Keynesian) the government should taxes and spending. less than, cut, increase more than, cut, cut more than, cut, increase 58 less than, increase, cut than the productive capacity of the economy. According to Paul government
Governments may achieve certain economic goals; say controlling inflation or boostingeconomic growth, by implementing fiscal and/or monetary policies. Briefly explain thedifference between fiscal and monetary policies
Imagine Sri Lanka is trying to reduce inflation using a contractionary fiscal policy. Discuss the impact of a contractionary fiscal policy using suitable diagrams ...
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by changing toxes to reduce the burden of this recession. Fiscal Policy 140 LRAS AS 130 120 110 100 90 80 70 AD 60 50 AD, 40 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Enter your answer as a whole number. If you are entering a negative number include a minus sign. a. How much does oggregate demanci need to change to restore the economy to its long-run equilbrilum? billion b. If the MPC is 0.667, how much do taxes need to change to shift aggregate demand by the amount you found in part a? billion Suppose instead that the MPC is 0.5. C. How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ [ billion and taxes need to change by $ billion. Price Level
when is fiscal policy more effective in shifting AD and influencing real GDP
Q.4.1 Use the following information on economy X to answer the questions below.Consumption function: C = 250 + 0.8YInvestment spending: I = 150Government spending: G = 500Exports of goods and services: X = 200Imports of goods and services: Z = 150Proportional tax rate: t =25%Full employment level of income = 3575Q.4.1.1 Calculate total autonomus spending for economy X. Q.4.1.2 Calculate the multiplier for economy X. Q.4.1.3 Calculate the equilibrium income for the economy. Q.4.1.4 Calculate the change in government spending required to reach full employment level of income.
What does the concept of "crowding out" mean in macro economics according to John Maynard Keynes?
Briefly describe the two conclusions that can be drawn from an overview of Say’s Law with its emphasis on macroeconomic supply and Keynes’ Law with its emphasis on macroeconomic demand.
What are the reasons of fiscal policy not being effective in an economy according to classical economists?
“Keynesian economists believe that the multiplier effect from a change in government expenditure on output can be high under slow price adjustments, but classical economists think that the multiplier effect is small or even zero under fast price adjustments.” Explain why it is true using the AD-AS framework.