Chapter 27: Problem 3
Why does a higher income tax rate reduce the multiplier effect?
Chapter 27: Problem 3
Why does a higher income tax rate reduce the multiplier effect?
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Identify each of the following as (1) part of an expansionary fiscal policy, (2) part of a contractionary fiscal policy, or (3) not part of fiscal policy. a. The corporate income tax rate is increased. b. Defense spending is increased. c. The Federal Reserve lowers the target for the federal funds rate. d. Families are allowed to deduct all their expenses for day care from their federal income taxes. e. The individual income tax rates are decreased.
Suppose that at the same time that Congress and the president pursue an expansionary fiscal policy, the Federal Reserve pursues an expansionary monetary policy. How might an expansionary monetary policy affect the extent of crowding out in the short run?
In The General Theory of Employment, Interest, and Money, , ohn Maynard Keynes wrote: If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coal mines which are then filled up to the surface with town rubbish, and leave it to private enterprise \(\ldots\) to dig the notes up again \(\ldots\) there need be no more unemployment and, with the help of the repercussions, the real income of the community \(\ldots\) would probably become a good deal greater than it is. Which important macroeconomic effect is Keynes discussing here? What does he mean by "repercussions"? Why does he appear unconcerned about whether government spending is wasteful?
What are the key differences between how we illustrate a contractionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?
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