Question

1. What is fiscal policy and who controls it?

2. What are the two basic fiscal policies that can be used to try to get the economy out of a recession? Name three Presidents who used the government spending technique. Name three Presidents who used the tax technique.

3. Estimate the impact of a $500 billion increase in government purchases, using an MPC of .6. (Use the simple multiplier formula from my notes.)

4. Estimate the impact of a $287 billion tax cut by calculating the change in GDP using an MPC of .6. (Use the simple multiplier formula for tax changes)

5. What is a budget deficit?

6. What are two costs of running a budget deficit for a long period of time?

7. As a percentage of GDP, in what period of time did the United States run the largest budget deficit?

8. The national debt of the United States has increased since 2000. What is one significant policy from the Bush Administration that increased the debt? What is one significant policy from the Obama Administration that increased the debt? What is one significant policy from the Trump Administration that increased the debt?

Answer 1

1.fiscal policy is policy run by government to influence the economy. control the economy. fiscal policy decides the taxation and government spending insruments to be used to sustain the economy during the time of recession and inflation.

2.  Increase government spending and decrease taxes.will help to overcome the recessionary situation. all president use the same measure to control recession but for your information president President Ronald Reagan, President George W. Bush, and President Barack Obama.use the same instuments of fiscal policy.

3. Change in GDP = (1/(1-MPC)) x Change in Spending

= (1/(1-.6)) x $500 billion

= (1/.4) x $500 billion

= 2.5 x $500 billion

= $1,250 billion

4. Change in GDP = (1/(1-MPC)) x (MPC x Tax Change)

= (1/(1-.6)) x (.6 x $287 billion)

= (1/ 0.4) x (.6 x $287 billion)

= 2.5 x $172.2 billion

= $430.5 billion.

5. budget deficit = Government spending greater than government revenue

6. crowding out, trade deficit and less social security scheme in economy.