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Chapter 13: Q. 14 (page 297)
Suppose that Congress enacts a lump-sum tax cut of billion. The marginal propensity to consume is equal to . Assuming that Ricardian equivalence holds true, what is the effect on equilibrium real GDP? On saving?
As a result, it is evident that tax cuts have no impact on actual GDP or savings.
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1. How does unemployment compensation function as an automatic stabilizer?
Explain how time lags in discretionary fiscal policy making could thwart the efforts of Congress and the president to stabilize real GDP in the face of an economic downturn. Is it possible that these time lags could actually cause the discretionary fiscal policy to destabilize real GDP?
The U.S. government is in the midst of spending more than billion on seven buildings containing more than square feet of space to be used for the study of infectious diseases. Prior to the government's decision to construct these buildings, a few universities had been planning to build essentially the same facilities using privately obtained funds. After construction on the government buildings began, however, the universities dropped their plans. Evaluate whether the government's billion expenditure is actually likely to push U.S. real GDP above the level it would have reached in the absence of the government's construction spree.
It is late 2019 , and the U.S. economy is showing signs of slipping into a potentially deep recession. Government policymakers are searching for income-tax-policy changes that will bring about a significant and lasting boost to real consumption spending. According to the logic of the permanent income hypothesis, should the proposed income-tax-policy changes involve tax increases or tax reductions, and should the policy changes be short-lived or long-lasting?
A government has found that 2 months elapse before it can identify a problem to address with policy action. It has been found that 1 month is required to determine the appropriate policy action. Finally, it has been concluded that the total time required between the initial presence of the problem and the effects of a policy action to be realized is 12 months. What are the remaining policy time lag and its duration?
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