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Chapter 10: Macroeconomic objective (page 196)

Which factors are affected when the government implements an expansionary fiscal policy?

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components of AD

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01

Macroeconomic objectives

When we look at the macroeconomic policy within an international context we mainly look at how the governments utilize macroeconomic instruments, such as fiscal policy in influencing the exchange rate about international trade. Fiscal policy may affect the exchange rate through income changes, price changes, and interest rates.

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Most popular questions from this chapter

In what direction will each of the following occurrences shift the consumption and saving schedules, other things equal?

  1. A large decrease in real estate values, including private homes.
  2. A sharp, sustained increase in stock prices.
  3. A 5-year increase in the minimum age for collecting Social Security benefits.
  4. An economywide expectation that a recession is over and that a robust expansion will occur.
  5. A substantial increase in household borrowing to finance auto purchases.

What are the variables (the items measured on the axes) in a graph of the (a) consumption schedule and (b) saving schedule? Are the variables inversely (negatively) related, or are they directly (positively) related? What is the fundamental reason that the levels of consumption and saving in the United States are each higher today than they were a decade ago?

Use your completed table for problem 1 to solve this problem. Suppose the wealth effect is such that \(10 changes in wealth produce \)1 changes in consumption at each income level. If real estate prices tumble such that wealth declines by \(80, what will be the new level of consumption and saving at the \)340 billion level of disposable income? The new level of saving?

Level of Output and Income (GDP = DI)
Consumption
Saving
APC
APS
MPC
MPS
\(240
\)244
-$4
1.016
-0.016
0.8
0.2
2602600100.8
0.2
28027640.985
0.014
0.8
0.2
30029280.9730.0260.8
0.2
320308120.962
0.037
0.8
0.2
340324160.9520.0470.8
0.2
360340200.944
0.055
0.8
0.2
380356240.9360.0630.8
0.2
400372280.930.070.80.2

What are the main macroeconomic objectives of a government?

In what direction will each of the following occurrences shift the investment demand curve, other things equal?

  1. An increase in unused production capacity occurs.

  2. Business taxes decline.

  3. The cost of acquiring equipment falls.

  4. Widespread pessimism arises about future business conditions and sales revenues.

  5. A major new technological breakthrough creates prospects for a wide range of profitable new products.
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