Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1. Fiscal policy is the practice of changing taxes or government spending with the goals of keeping the economy near full employment and keeping inflation

1. Fiscal policy is the practice of changing taxes or government spending with the goals of keeping the economy near full employment and keeping inflation relatively low.

A. Fiscal policy may be expansionary. What specific changes constitute expansionary fiscal policy? Show, on an AD/AS diagram, an economy in which expansionary fiscal policy would be appropriate and the effect of expansionary fiscal policy on that economy. Include detailed graph (with labels) and explanation

B. Fiscal policy may also be contractionary. What specific changes constitute contractionary fiscal policy? Show, on an AD/AS diagram, an economy in which contractionary fiscal policy would be appropriate and the effect of contractionary fiscal policy on the economy. Include detailed graph (with labels) and explanation

C. One problem with fiscal policy is that there can be a long lag time from the time a change occurs in the economy to when it's detected and addressed and then to when the response has an effect on the economy. Show what will happen if the government uses some fiscal policy to respond to the high unemployment rate but, due to the lags, does so only after the economy has returned to long-run equilibrium on its own. Be sure to show both the short-run and long-run effects of the fiscal policy. Include detailed graph with labels and explanation

Step by Step Solution

There are 3 Steps involved in it

Step: 1

A Expansionary fiscal policy The goal of expansionary fiscal policy is to close a recessionary gap stimulate the economy and decrease the unemployment rate Expansionary fiscal policy is often supporte... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals Of Management

Authors: Ricky Griffin

10th Edition

0357517342, 978-0357517345

More Books

Students also viewed these Economics questions

Question

What is the cerebrum?

Answered: 1 week ago