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A news article notes, "China recorded a current-account surplus of $\$ 76.6$ billion in the second quarter but that was offset by a deficit of the same amount on its capital and financial account." Is this outcome surprising? Briefly explain.
What is the role of the Council of Economic Advisers (CEA) as it relates to fiscal policy? Class assignment: Determine the names and educational backgrounds of the present members of the CFA.
Assume that a hypothetical economy with an MPC of .8 is experiencing severe recession. By how much would government spending have to increase to shift the aggregate demand curve rightward by $\mathrm{S} 25$ billion? How large a tax cut would be needed to achieve the same increase in aggregate demand? Why the difference? Determine one possible combination of government spending increases and tax decreases that would accomplish the same goal.
What are government's fiscal policy options for ending severe demand-pull inflation? Which of these fiscal options do you think might be favored by a person who wants to preserve the size of government? A person who thinks the public sector is too large? How does the "ratchet effect" affect anti-inflationary fiscal policy?
(For students who were assigned Chapter 28 ) Use the aggregate expenditures model to show how government fiscal policy could eliminate either a recessionary expenditure gap or an inflationary expenditure gap (Figure 28.7 ). Explain how equal-size increases in $G$ and $T$ could eliminate a recessionary gap and how equal-size decreases in $G$ and $T$ could eliminate an inflationary gap.
Explain how built-in (or automatic) stabilizers work. What are the differences between proportional, progressive, and regressive tax systems as they relate to an economy's built-in stability?
