QUESTION 1

The government of the United States is planning to stimulate the economy in 2021 with a package of fiscal stimulus.Part of this package consists of government purchases of goods and services(i.e., public consumption). We want to know howthis part of the packageaffects the U.S. economy. Assume that the households' consumption is 70% of aggregate expenditure in the U.S. economy, the tax rate is 25%, the marginal propensity to consume (MPC) is 0.5, and the import share is 0.2 for both government spending and household's consumption. Also, assume that the interest rate, aggregate price level, expected inflation rate, and net taxes in the U.S. are all exogenously given. Furthermore, assume that the situation in the rest of the world is given, the interest parity condition holds and the expectations of the future economic trends in 2022 and beyond in the U.S. and the rest of the world remain unchanged. In this situation, if only the public consumption part of the stimulus package is implemented, the aggregate "preferred" expenditure curve (theDcurve) of the U.S. economy

a. wouldnot shift.

b. wouldshift upward.

c. wouldshift downward.

d. mayshift upward or downward depending on the situation.

QUESTION 2

In the scenario described in Question 1, the multiplier of the fiscal stimulus __________

a. willbe equal to zero.

b. willbe equal to one.

c. willbe less than one.

d. willbe greater than one.

e. maybe less than, equal to, or greater than one, depending on the situation.

QUESTION 3

In the scenario described in Question 1, we want to know how fiscal stimulus in the U.S. would affect Japan's economy. Assume that government expenditure, interest rates, aggregate price level, expected inflation rate, and net taxes in Japan are all exogenously given. Also, assume that the interest parity condition holds and the expectations of the future economic trends in the two economies remain unchanged. In this situation, if the U.S. stimulus package is implemented, the IS curve of the Japanese economy

a. wouldnot shift.

b. wouldshift to the left.

c. wouldshift to the right.

d. mayshift to the right or to the left depending on the situation.