9.T/F a. A tax increase will have less of a direct impact on income, employment, and...

9.T/F

a. A tax increase will have less of a direct impact on income, employment, and output than will an equivalent increase in government spending.

b. Currency fluctuations affect aggregate supply and demand.

c. In June 2013, the Bank of Japan announced that it was continuing its easy money policy through open market operations. The Bank must have decided to continue to sell securities.

Expert Solution

9. (a) True

A tax increase affects the expenditure multiplier whereas an increase in government speneing affects the expenditure multiplier. A change in taxes and a change in government spending both has a multiplier effect in the economy. But the magnitude of the tax multiplier is always a little less in magnitude than the expenditure multiplier. This is because the impact of the tax multiplier affects indirectly, not directly like the expenditure multiplier. So a tax increase will have less of a direct impact on income, employment and output than will an equivalent increase in government spending.

(b) True

Currency fluctuations affects aggregate demand and supply because when the currency of a country depreciates, exports become cheaper than imports and there is an increase in exports and decrease in imports whereas when the currency of a country appreciates, imports become cheaper than exports and there is an increase in imports than exports. Exports and Imports affect the aggregate demand and supply of a country and so currency fluctuations affect the aggregate demand and supply.

(c) False

In 2013, the Bank of Japan announced that it was continuing its easy money policy through open market operations. Easy money policy means that the Bank of Japan is using a monetary policy where the money supply of the economy would increase. Selling securities in the economy means that the central bank is trying to decrease the money supply in the economy by selling the securities in the public and taking away money from the hands of the people in the nation. So, the statement the the bank must have decided to continue to sell securities is false.

Rahul Sunny answered 6 hours ago

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