(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?

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?

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Assume the economy is at full employment as of January 2018 and the government passes a...

Assume the economy is at full employment as of January 2018 and the government passes a tax bill that reduces taxes by $100B.The tax, however, does not change government spending What effect is this likely to have on output and prices levels? What effect will this have on interest rates and investment? What is the likely response by the Federal Reserve? Suppose that the economy was below full employment, how would that change your answer?

Which of the following describes how employment insurance compensation and welfare payments are affected by the...

Which of the following describes how employment insurance compensation and welfare payments are affected by the state of the economy? a. When the economy is in a recession, payments automatically increase. b. When the economy enters a boom, payments automatically increase. c. When the economy goes into contraction, payments automatically decrease. d. When the economy is in a recession, payments automatically decrease.

Suppose Congress passes a family leave policy that requires employers to all workers, both male and...

Suppose Congress passes a family leave policy that requires employers to all workers, both male and female, six months paid leave after the birth of a child. Explain how this does or doesn’t maker workers better off.

1. The government may follow a 'Transfer Promoting Policy' instead of a 'Growth Promoting Policy' in...

1. The government may follow a 'Transfer Promoting Policy' instead of a 'Growth Promoting Policy' in determining who gets the transfer payment. give an example from the current situation. 2. if the government were to increase government spending (G) Instead of paying transfer (TR), what type of crowding out would you expect? Briefly explain. 3. As we have observed recently that, a lot of the assistance from the government is being misappropriated by dishonest individuals and as a result is...

Suppose that the government subsidizes employment. That is, the government pays the firm s units of...

Suppose that the government subsidizes employment. That is, the government pays the firm s units of consumption goods for each unit of labour that the firm hires. In the presence of the subsidy, we observe that (Show and explain your solution graphically

Suppose that the government subsidizes employment. That is, the government pays the firm s dollars for...

Suppose that the government subsidizes employment. That is, the government pays the firm s dollars for each hour of labor the firm hires. In a graph that illustrates total revenue and total cost, illustrate the e§ect this subsidy has on the proÖt maximizing level of labor hired. Does it increase or decrease the labor?

Suppose the minimum downpayment on a house is currently 5%. But, the government suddenly passes a...

Suppose the minimum downpayment on a house is currently 5%. But, the government suddenly passes a law making the minimum downpayment 25%. How will this affect the likelihood of “defaults” and foreclosures? Explain. Bill is borrowing money for a house and puts down a 20% downpayment. The bank representative is worried that Bill does not have the ability to make payments; in fact, the bank representative thinks it is very likely that Bill will default. But, the bank decides to...

Suppose you are a policy-maker your ultimate goal is to maximize the social welfare.

Suppose you are a policy-maker your ultimate goal is to maximize the social welfare. There is a hardware firm producing a product, say laptop. This firm produces one kind of laptop with respect to its technical specificătions but with different colours. Suppose the firm sets the same price,p. for a laptop regardless of its colour. • Does this firm overproduce or underproduce? Explain. • What kind of strategy would make the firm produce in a way to maximize the social welfare?

2. Suppose an economy satisfies the assumptions of the First Welfare Theorem. The government notices that...

2. Suppose an economy satisfies the assumptions of the First Welfare Theorem. The government notices that all firms are owned by the same person. Therefore, the government decides to expropriate this person, and to reallocate ownership in firms equally among all consumers in the economy. Aside from this, the government lets markets freely reach a general equilibrium of supply and demand. Would this government intervention cause the economy’s use of resources to become Pareto inefficient?

Suppose the economy is initially in equilibrium. Congress passes a tax cut policy. Compare the impact...

Suppose the economy is initially in equilibrium. Congress passes a tax cut policy. Compare the impact of this policy in a small open economy and a large open economy. In a small open economy, how does this policy affect national saving, the real interest rate, trade balance, and the real exchange rate? Use diagrams to help answer this question. In a large open economy, how does this policy affect national saving, the real interest rate, trade balance, and the real...

Subjects