Suppose the government of a small open economy engages in contractionary fiscal policy (raise income taxes)...

Suppose the government of a small open economy engages in contractionary fiscal policy (raise income taxes) in order to slow down economic activity. Use the long-run model of a small open economy to graphically illustrate the impact of this contractionary fiscal policy on the real interest rate and the trade balance. Assume the country starts from a position of trade balance, i.e., exports equal imports. Be sure to label: (i) the axes; (ii) the curves; (iii) the initial equilibrium values; (iv) the direction the curves shift; and (v) the new long-run equilibrium values.

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Rahul Sunny answered 2 years ago

Suppose the government of a small open economy engages in contractionary fiscal policy (raise income taxes)...

Suppose the government of a small open economy engages in contractionary fiscal policy (raise income taxes) in order to slow down economic activity. Use the long-run model of a small open economy to graphically illustrate the impact of this contractionary fiscal policy on the real interest rate and the trade balance. Assume the country starts from a position of trade balance, i.e., exports equal imports. Be sure to label: (i) the axes; (ii) the curves; (iii) the initial equilibrium values;...

Suppose the unemployment rate is currently 4.0% and the government engages in contractionary fiscal policy. Using...

Suppose the unemployment rate is currently 4.0% and the government engages in contractionary fiscal policy. Using Keynesian economics, what will happen to RGDP? a.RGDP will decrease b.RGDP will increase c.RGDP will not change d.RGDP could decrease or stay the same e.RGDP could increase or stay the same 6)Suppose the unemployment rate is currently 4.0% and the government engages in expansionary fiscal policy. Using Keynesian economics, what will happen to RGDP? a.RGDP will decrease b.RGDP will increase c.RGDP will not change...

Initially a small open economy is in recession. The government implements expansionary fiscal policy by increasing...

Initially a small open economy is in recession. The government implements expansionary fiscal policy by increasing government spending. However, central bank worries about inflation and increase interest rate. Examine the effects of this policy combination on output, interest rate and the components of demand under flexible exchange rate regime(Hint:Useopen economyIS-LM model)

To raise GDP, which of the following might the government do? Contractionary Fiscal Policy lower individual...

To raise GDP, which of the following might the government do? Contractionary Fiscal Policy lower individual tax rates cause AD to shift left decrease Govt spending If AD is shifting left, which of the following is likely occurring? Expansionary Fiscal Policy Inflation Contractionary Fiscal Policy increasing GDP If our economy is experiencing an expansionary gap, which of the following would be the likely response by our govt? increase AD lowering corporate taxes Expansionary Fiscal Policy actions that would cause AD...

Fiscal Policy entails government spending and taxes to restore the economy back to equilibrium and a...

Fiscal Policy entails government spending and taxes to restore the economy back to equilibrium and a stable growth path. Considering the current state of the economy, what policy(ies) do you think government need to implement to alleviate the current economic hardship?

Consider an economy experiencing a recession. The government is considering using expansionary fiscal policy to raise...

Consider an economy experiencing a recession. The government is considering using expansionary fiscal policy to raise the output level. A. Assume that the economy is closed. Explain the effects of the fiscal expansion on output, consumption, and investment. Illustrate your answer by the IS-LM model. B. Assume that this is an open economy with flexible exchange rates. Explain the effects of the fiscal expansion on output, consumption, investment, the trade balance, and the exchange rate. Illustrate your answer by the...

6. When a government engages in an expansionary fiscal policy, it cuts government spending and raises...

6. When a government engages in an expansionary fiscal policy, it cuts government spending and raises taxes in order to reduce its budget deficit. a. True b. False

q11. A contractionary fiscal policy by a government may result in which of the following? An...

q11. A contractionary fiscal policy by a government may result in which of the following? An increased trade deficit a reduction in government borrowing crowding out of private investment lower interest rates q12. How federal government taxing and spending affects aggregate demand is the point of corporate policies. the point of fiscal policy. the point of monetary policy.

Question 3 The effect of a contractionary fiscal policy on the economy depends on the central’s...

Question 3 The effect of a contractionary fiscal policy on the economy depends on the central’s bank response to the fiscal policy. Consider a closed economy, and the government conducted a contractionary fiscal policy. The central bank responds to this fiscal policy by holding the interest rate constant. Use the IS-LM model and the money market diagram to illustrate graphically the impact of this contractionary fiscal policy on output and interest rate given the response of the central bank. Be...

explain how a reduction in taxes would impact income in a small open economy with floating...

explain how a reduction in taxes would impact income in a small open economy with floating exchange rate versus a small open economy with fixed exchange rate. give detailed intuitive explanation along with graphs to explain your reasoing

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Suppose the government of a small open economy engages in contractionary fiscal policy (raise income taxes)...

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Suppose the government of a small open economy engages in contractionary fiscal policy (raise income taxes)...

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