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Economics

David Begg, Gianluigi Vernasca, Stanley Fische

Chapter 17

Fiscal policy and foreign trade - all with Video Answers

Educators

Chapter Questions

01:59

Problem 1

In equilibrium, desired saving equals desired investment. Is the statement true or false? Explain.

Haricharan Gupta
Haricharan Gupta
Numerade Educator
03:33

Problem 2

Why does the government raise taxes when it could borrow to cover its spending?

Haricharan Gupta
Haricharan Gupta
Numerade Educator
02:08

Problem 3

The EU's trading partners are in recession. (a) What happens to the EU's trade balance? (b) What happens to equilibrium EU output? Explain.

Haricharan Gupta
Haricharan Gupta
Numerade Educator
03:29

Problem 4

Common fallaciesWhy are these statements wrong? (a) The Chancellor raised taxes and spending by equal amounts. It will be a neutral budget for output. (b) Government policy should balance exports and imports but ensure that the government and private sector spend less than they earn.

Haricharan Gupta
Haricharan Gupta
Numerade Educator
01:04

Problem 5

Which of the following statements is correct? The trade surplus equals (a) the government surplus plus the private sector surplus, (b) the government deficit plus the private sector surplus or (c) the government deficit plus the private sector deficit.

Haricharan Gupta
Haricharan Gupta
Numerade Educator
01:51

Problem 6

Equilibrium output in a closed economy is $£ 1000$, consumption is $£ 800$ and investment is $£ 80$. (a) Deduce $G$. (b) Investment rises by $£ 50$. The marginal propensity to consume out of national income is $0.8$. What are the new equilibrium levels of $Y, C, I$ and $G$ ? (c) Suppose instead that $G$ had risen by $£ 50$. What would be the new equilibrium levels of $Y, C, I$ and $G ?$ (d) If potential output is $£ 1200$, to what must $G$ rise to make output equal potential output?

Jennifer Stoner
Jennifer Stoner
Numerade Educator
06:55

Problem 7

The government spends $£ 6$ billion on rail track. The income tax rate is $0.25$ and the $M P C$ out of disposable income is $0.8$. (a) What is the effect on equilibrium income and output? (b) Assuming that the government budget is in deficit, does the budget deficit rise or fall? Why?

Md.Daniyal Arshad
Md.Daniyal Arshad
Numerade Educator
01:33

Problem 8

In 2010, the new UK government wanted to reduce the size of the enormous budget deficit, but also pointed out that the structural budget deficit was significantly smaller than the actual deficit. (a) What does this mean? (b) Why does it matter? (c) Why does this make the subsequent growth of the UK economy so important?

Jennifer Stoner
Jennifer Stoner
Numerade Educator
08:21

Problem 9

If $Y^{* *}$ is the level of long-run equilibrium output of an open, mixed economy, and if short-run equilibrium output $Y^{*}$ is given by the model in this chapter, deduce the relationship between the marginal tax rate $t$, the discrepancy between the actual budget and the structural budget, and the power of the automatic stabilizers.

Rashmi Sinha
Rashmi Sinha
Numerade Educator
03:19

Problem 10

Is the ratio of government debt to GDP a useful indicator of a government's indebtedness? When could it be misleading?

Haricharan Gupta
Haricharan Gupta
Numerade Educator
02:24

Problem 11

What values of the marginal propensity to save $s$, the marginal tax rate $t$ and the marginal propensity to import $z$ would be consistent with a multiplier as low as $0.67 ?$

Andrew Davis
Andrew Davis
Numerade Educator
02:52

Problem 12

Essay question 'By 2007, the UK had had over 50 consecutive quarters of steady growth. This period coincided with the period in which it was decided to make the Bank of England responsible for macroeconomic stabilization. Because
interest rates can be changed easily and quickly, whereas tax rates and spending programmes cannot, this example confirms the superiority of monetary policy over fiscal policy in demand management.' Is this broadly correct? Can you think of examples in which fiscal policy would still be crucial? Did events after 2007 help vou answer this question?

Sujita Thavva
Sujita Thavva
Numerade Educator
12:01

Problem 13

Suppose the marginal propensity to consume out of disposable income is $0.8$, the marginal tax rate is $0.5$ and the marginal propensity to import is $0.8$. Draw a diagram showing the 45 -degree line and the aggregate demand schedule. (a) How does this diagram differ from those earlier in the chapter? (b) What is the size of the multiplier? (c) Illustrate graphically the effect of a shift in aggregate demand.

Crystal Wang
Crystal Wang
Numerade Educator
02:49

Problem 14

Suppose the marginal propensity to consume out of disposable income is $0.8$, the marginal tax rate is $0.5$ and the marginal propensity to import is $0.8$. Draw a diagram showing the 45 -degree line and the aggregate demand schedule using the diagram in which planned injections equal planned leakages. (a)How does this diagram differ from those earlier in the chapter? (b) What is the size of the multiplier? (c) Illustrate graphically the effect of a shift in aggregate demand using the diagram in which planned injections equal planned leakages.

Mihir Nayar
Mihir Nayar
Numerade Educator