Suppose that a federal election is called at a time when the economy is experiencing a...

Suppose that a federal election is called at a time when the economy is experiencing a recessionary gap and there is a budget deficit.

The leader of Party A promises, if elected, to immediately balance the budget by slashing government spending.

The leader of Party B promises, if elected, to stimulate the economy with a tax decrease.

What would be the effect of each party’s proposed policy on each of the following.

	The effect of Party A's proposed policy on:	The effect of Party B's proposed policy on:
a. the level of GDP.	(Click to select) decrease increase may increase or decrease remain the same remain the same or decrease remain the same or increase	(Click to select) decrease increase may increase or decrease remain the same remain the same or decrease remain the same or increase
b. the level of NTR.	(Click to select) decrease increase may increase or decrease remain the same remain the same or decrease remain the same or increase	(Click to select) decrease increase may increase or decrease remain the same remain the same or decrease remain the same or increase
c. the level of unemployment.	(Click to select) decrease increase may increase or decrease remain the same remain the same or decrease remain the same or increase	(Click to select) decrease increase may increase or decrease remain the same remain the same or decrease remain the same or increase
d. the budget deficit.	(Click to select) decrease increase may increase or decrease remain the same remain the same or decrease remain the same or increase	(Click to select) decrease increase may increase or decrease remain the same remain the same or decrease remain the same or increase
e. the price level	(Click to select) decrease increase may increase or decrease remain the same remain the same or decrease remain the same or increase	(Click to select) decrease increase may increase or decrease remain the same remain the same or decrease remain the same or increase

Expert Solution

> Effect of part A's proposed policy

a) decrease

( GDP= consumption expenditure+ investment expenditure+ government expenditure+ net exports. So a fall in government expenditure will lead to a decline in GDP.)

b) decrease

( NTR is a function of government expenditure. So a fall in government expenditure will lead to a decline in NTR.)

c) increase

( lf employment opportunities and consumption are financed by government expenditure, then unemployment rate will rise.)

d) decrease

( Budget deficit= total receipts- total spending. Lower the spending, lower the budget deficit.)

e) decrease

( Decrease in government expenditure will lead to a decline in aggregate demand. Decline in aggregate demand will be accompanied by a fall in price level.)

Rahul Sunny answered 2 years ago

Suppose the world is experiencing a pandemic and the economy is experiencing both a severe short-...

Suppose the world is experiencing a pandemic and the economy is experiencing both a severe short- run supply-side shock as people must stay away from work to prevent the spread, but also a decrease in the demand for goods and services that pushes the economy into recession. Based on the models provided in our class, what do you expect to happen to the economy? Illustrate your answer with the AD/AS graph and ISLM. Note that the goal of this question...

Suppose the U.S. economy faces a productivity slump, while at the same time the federal government...

Suppose the U.S. economy faces a productivity slump, while at the same time the federal government begins spending a lot of money on defense and social programs (this is akin to what happened in the U.S. during the 1960s and 1970s). Assume wages are sticky in the short run. a. For each of the following variables, state whether it rises or falls, or whether the impact is ambiguous, after the two events described above: real GDP growth rate, unemployment, and...

Suppose you are the governor of the Bank of Canada and the economy is experiencing a...

Suppose you are the governor of the Bank of Canada and the economy is experiencing a sharp rise in the inflation rate. What actions would you take in: a. open-market operations sell bonds buy bonds make advances to the chartered banks change the overnight lending rate b. the bank rate raise the rate lower the rate set the rate at the lower bound of the Bank of Canada's operating band for the overnight lending rate set the rate lower than...

The economy is currently experiencing an economic boom with low unemployment and high output. The Federal...

The economy is currently experiencing an economic boom with low unemployment and high output. The Federal Reserve could conduct contractionary monetary policy to restore the economy to its natural rate of output. 1. Draw and upload a graph of the money market to illustrate the effect of an open-market operation that would be consistent with contractionary monetary policy. 2. Draw and upload a graph of the Aggregate Demand and Aggregate Supply model to illustrate the impact of the contractionary monetary...

Suppose that the federal government begins to run a large budget deficit at a time when...

Suppose that the federal government begins to run a large budget deficit at a time when many productive resources are idle factories are operating far below capacity in most industries, and there are surplus of labour in almost every area of the economy. How might the existence of all these idle resources prevent even a very large increase in government borrowing from leading to an increase in interest rates? If you found part (a) hard to answer, ask yourself whether...

Suppose that the economy is currently experiencing a recession and that revenues for the current year...

Suppose that the economy is currently experiencing a recession and that revenues for the current year are equal to expenditures. a. What is the budget deficit in this case? b. How would a cyclically adjusted budget deficit be different? Explain.

Suppose you are the governor of the Bank of Canada. The economy is experiencing a sharp...

Suppose you are the governor of the Bank of Canada. The economy is experiencing a sharp rise in the inflation rate. What changes would you consider in: a) Open-market operations b) The bank rate c) Explain in each case how the change you advocate would affect chartered bank cash reserves and influence the money supply? Elaborate your ideas with hypothetical examples related to any Canadian charted bank? d) Distinguish between the overnight lending rate and the prime interest rate....

If the economy is experiencing accelerating inflation, what (traditional) policy would the Federal Reserve System (Fed)...

If the economy is experiencing accelerating inflation, what (traditional) policy would the Federal Reserve System (Fed) implement with regard to interest rates? Explain briefly, including what specifically the Fed would do in the implementation of the policy. Note that the appropriate policy is the opposite of what the Fed would do to combat a recession. Show graphically how the Fed policy you described above would affect the market for loanable funds. Explain briefly.

If the government wants to follow an active stabilization policy when the economy is experiencing an...

If the government wants to follow an active stabilization policy when the economy is experiencing an excessively high rate of inflation then the government should increase the money supply and decrease taxes. Select one: True False If the Fed conducts open-market purchases, the money supply increases, interest rates decrease and aggregate demand shifts to the left. Select one: True False According to supply-side economists, a reduction in the tax rate provides an incentive for people to work more and the...

Suppose an economy is experiencing higher inflation rate as well as a recessionary gap. Using the...

Suppose an economy is experiencing higher inflation rate as well as a recessionary gap. Using the policy reaction function, explain whether the Reserve bank will increase or decrease the interest rate?

Question