(a) Suppose the government passes a policy that declares that welfare, employment insurance, and all transfer...

(a) Suppose the government passes a policy that declares that welfare, employment insurance, and all transfer payments will remain constant regardless of changes in income. Will this policy increase or decrease the volatility (size of the variations in real GDP) of the business cycle?

Hint: Consider the concept of automatic stabilizers and the impact of this policy on the multiplier

(b) Would this policy increase or decrease the magnitude (size of the effect) of the effects of discretionary fiscal policy?

(a) Suppose the government passes a policy that declares that welfare, employment insurance, and all transfer payments will remain constant regardless of changes in income. Will this policy increase or decrease the volatility (size of the variations in real GDP) of the business cycle?

Hint: Consider the concept of automatic stabilizers and the impact of this policy on the multiplier

(b) Would this policy increase or decrease the magnitude (size of the effect) of the effects of discretionary fiscal policy?

Expert Solution

Rahul Sunny answered 2 years ago

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