Which of the following policy changes would decrease the real interest rate? A A tax cut...

Which of the following policy changes would decrease the real interest rate?

A A tax cut on interest income

B A policy that decreases government consumption expenditures

C A reduction in social security benefits

D All of the above

correct answer is D

need the explianation

Solutions

Expert Solution

A tax cut on interest income:

When a government cuts taxes on interest income it increases the demand for assets as well as the supply of labor. The economy has to respond by lowering interest rates & higher investments for economic growth.

A policy that decreases government consumption expenditures:

When a government decides to decrease consumption expenditure, it doesn’t have to borrow from banks & financial institutions to finance the deficit caused by increasing expenditure. Therefore the total sum of loanable money with the banks is increased. Banks have to lower the interest rates to increase the demand for loanable funds. Thus a decrease in government consumption expenditure lowers the real interest rates.

A reduction in social security benefits:

A reduction in social security benefits will decrease federal deficit & government will not raise additional monies. This will lead to lowering of real interest rates.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Which of the following would not be considered pure contractionary fiscal policy? A. A cut in...

Which of the following would not be considered pure contractionary fiscal policy? A. A cut in taxes matched by an equal cut in spending. B. A cut in spending used to finance a cut in the money supply. C. A cut in spending in order to buy back some outstanding government bonds. D. A tax increase used to buy back some outstanding government bonds.

Which policy measure would be more successful in stimulating the economy: a $100 billion tax cut...

Which policy measure would be more successful in stimulating the economy: a $100 billion tax cut financed by a $100 billion cut in government purchases, or a temporary tax credit of 10% on each productive investment undertaken next year? Explain your answer.

For each of the following changes, what happens to the real interest rate and output in...

For each of the following changes, what happens to the real interest rate and output in the very short run, before the price level has adjusted to restore general equilibrium? (a) Wealth rises. (b) Money supply rises. (c) The future marginal productivity of capital increases. (d) Expected inflation declines. (e) Future income declines.

The Tax Cut and Jobs Act, 2017 The changes made by the Tax Cut and Jobs...

The Tax Cut and Jobs Act, 2017 The changes made by the Tax Cut and Jobs Act, 2017 to the tax provisions have changed tax rate for 2018 and people are getting a first hand experience of what it means to them. Go over the Act and address the questions below: 1. What are the major changes made to the tax provisions by the Act? 2. What impact is it likely to have on our GDP and government’s budget?

The Tax Cut and Jobs Act, 2017 The changes made by the Tax Cut and Jobs...

The Tax Cut and Jobs Act, 2017 The changes made by the Tax Cut and Jobs Act, 2017 to the tax provisions have changed tax rate for 2018 and people are getting a first hand experience of what it means to them. Go over the Act and address the questions below in full paragraphs: Does everyone benefit from the changes in tax provisions or does it favor one group over others? What changes do you agree and disagree with?

The Tax Cut and Jobs Act, 2017 The changes made by the Tax Cut and Jobs...

The Tax Cut and Jobs Act, 2017 The changes made by the Tax Cut and Jobs Act, 2017 to the tax provisions have changed tax rate for 2018 and people are getting a first hand experience of what it means to them. Go over the Act and address the questions below in full paragraphs: If you had the power to revise the Act, what changes would you make? How have the changes in taxes affected you personally? Many articles have...

MACROECONOMICS a. Which of the following events would increase the real interest rate in our neoclassical...

MACROECONOMICS a. Which of the following events would increase the real interest rate in our neoclassical model? [] a newly elected Congress cuts government purchases significantly [] the state legislature cuts taxes significantly [] investment demand drops because of uncertainty during a crisis (e.g. pandemic) [] C(Y-T) is Keynesian and the MPC declines b. Suppose that investment in commercial real estate leads to a large capital stock, what happens in our neoclassical model with endogenous P? (check the boxes ONLY...

If the tax rate is 40 percent, compute the before-tax real interest rate and the after-tax...

If the tax rate is 40 percent, compute the before-tax real interest rate and the after-tax real interest rate. (answer in percentages. If whole percentages, do not need decimals. If have decimals, round to nearest hundredth of percent) Show all steps clearly assume multiplying percentages by $100 before-tax real interest rate = nominal interest rate - inflation rate reduction in nominal interest = nominal interest rate multiplied by tax rate after-tax nominal interest rate = nominal interest rate - reduction...

Which of the following would make the price level increase and real GDP decrease?

Which of the following would make the price level increase and real GDP decrease? a. aggregate demand shifts right. b. long-run aggregate supply shifts right c. aggregate demand shifts left d. long-run aggregate supply shifts left

Which of the following would be correct assuming that interest rates decrease? A. The price of...

Which of the following would be correct assuming that interest rates decrease? A. The price of a bond will decrease while the reinvestment income will increase. B. The price of a bond will decrease while the reinvestment income will decrease. C. The price of a bond will increase while the reinvestment income will decrease. D. The price of a bond will increase while the reinvestment income will increase. E. none of the above is correct. Which of the following is...

Subjects