Initially, there is no output gap and inflation expectations are 2%. Then, expansionary fiscal policy results in GDP rising 3% above potential GDP. What is the inflation rate after that fiscal expansion
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Initially, there is no output gap and inflation expectations are 2%. Then, expansionary fiscal policy results in
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- Which of the following is an effective fiscal tool to control inflation in boom times?a) Reducing government spendingb) Increasing government spendingc) Decreasing taxationd) Increasing money supplyWhich of the following would be a fiscal policy prescription for ending inflation? A) Raise taxes B) Increase government expenditures to let the multiplier work C) Raise interest rates to stimulate saving D) Promote exports to increase injections in the domestic economyWhy do some economists support some level of inflation over completely stable prices? Instructions: You may select more than one answer. Click the box with a check mark for correct answers and click to empty the box for the wrong answers. ? Reduced risk of deflation ? Easier for firms to adjust real wages ? More opportunity for contractionary fiscal policy ? More difficult for firms to adjust real wages ? More opportunity for expansionary monetary policy
- Define inflation. Explain why inflation is a macroeconomic concern. Question 2: How can the government utilize the instruments within a fiscal policy to stimulate economic activity in an economy experiencing a recession.If the Central Bank of Vinicius wants to reduce the inflation rate they could: a) sell public debt, this way the price of public debt increases and demand drops. b) sell public debt, therefore the price of the public debt decreases, the monetary base decreases, market interest increase, and demand drops. c) buy public debt, therefore the price of public debt increases, the market interest rates drop, therefore investment drops. d) sell public debt, therefore the price of public debt decreases, the market interest rates drop, this way helping to a drop in the aggregate demandInflation rates in the US have recently been at their highest level in decades. Imagine your local Congressman came to you for advice. If lower inflation is her only goal, what type of policy would you recommend? A contractionary fiscal policy An expansionary fiscal policy
- The US government has recently announced and started to implement a large-scale fiscal expansion to mitigate the negative effects of the coronavirus pandemic and reboot the US economy. The Biden administration argued that this fiscal stimulus policy can rapidly accelerate the economic recovery without triggering high levels of inflation. How is the effect of US fiscal stimulus policy in terms of its possible effect on inflation.Explain what Tom Sargent meant when he asserted, "Inflation is always and everywhere a fiscal phenomenon." In particular, make sure to discuss how this quote relates to episodes of hyperinflationOne of the fiscal measures of dealing with inflation is: a. Implement a budget surplus b. Operate a budget deficit c. Increase the rate of interest d. Operate a balance budget
- Inflation rates in the US have recently been at their highest level in decades. Imagine your local Congressman came to you for advice. If lower inflation is her only goal, what is a specific Fiscal Policy that you would recommend? Note: you must be specific - name the fiscal policy tool that you would use and how you would change it (increase or decrease or raise or lower or buy or sell - whatever is relevant to the tool you're talking about). It's not enough to say "expansionary fiscal policy" or "contractionary fiscal policy." Feel free to review the sections of the text on expansionary and contractionary.fiscal policy to review the specific types of policies that fiscal policy includes.Suppose that the government decreases spending more than is necessary to close an inflationary gap. What is the MOST likely result? Inflation will increase. The price level will increase. Aggregate output will fall short of potential output. Aggregate output will increase.If the government tries to reduce inflation when the production level in the country is higher than potential Gross Domestic Product, then one of the following answers which depicts a fiscal policy measure will be able to achieve that goal. Which one? Group of answer choices decrease in government spending decrease corporate tax rates decrease the interest rate increase transfer payments