identify-each-of-the-following-as-1-part-of-an-expansionary-fiscal-policy-2-part-of-a-contractionary

Question

Identify each of the following as $(1)$ part of an expansionary fiscal policy, ( 2 ) part of a contractionary fiscal policy, or $(3)$ not part of fiscal policy.
a. The corporate income tax rate is increased.
b. Defense spending is increased.
c. The Federal Reserve lowers the target for the federal funds rate.
d. Families are allowed to deduct all their expenses for day care from their federal income taxes.
e. The individual income tax rate is decreased.

Tristan Wille · Accepted Answer

all right, We&#x27;re doing problem before from chapter 16 section to it Saying identify each of the following is one part of an expansionary fiscal policy to part of a contraction of fiscal policy. Your three not part of any physical walls. Uh, situation A is the corporate income tax rate of increase. Uh, this is going to be that&#x27;s really bad to you. This is gonna contractionary. Uh, it&#x27;s I think so. This is going to contractionary because we&#x27;re basically charging bigger corporations more, which means angry demands. You go down. Uh, B is defense. Spending has increased, and that&#x27;s gonna be a situation one expansionary fiscal policy. Just because defense money is a huge part of the government spending and because of that, has that increases. So, therefore, is a great demand, because the government should be spending all kinds of money buying, you know, weapons and stuff, and paying for soldiers and whatever for we&#x27;re see, it&#x27;s asking The Federal Reserve lowers the target for the federal funds rate. Well, this is the Fed. This isn&#x27;t fiscal policy at all. So it&#x27;s neither, because again, it doesn&#x27;t involve a government policy. It involves Federal reserve policy. Uh, parties. Families are allowed to deduct all the expensive all their expenses for day care from their federal income taxes. That&#x27;s going to expansionary because it&#x27;s basically giving people more money back, essentially lowering taxes. Um, and by doing that, that&#x27;s gonna be expansionary. And he is the individual income tax or has decreased. And that one is, of course, expansion areas. Well, because you&#x27;re paying a lower tax rate, you have more money. Now you can spend that money and the

Xiaomin Bian · Answer

okay show for this question, it ask whether it&#x27;s dispatchers of those policies is unlikely to increase the rate of economic girls in United States. So 1st 1 for Part eight. They say that the Congress Posse investment tax credits, which reduces firms tax evidence, store new machine and equipment show for this one. Ah, lower tax for this kind of a slowing in new machine and equipments or actually increase economic gross. The reason why is that if the tax off he&#x27;s going, those machines and equipment is over, then firms are more likely to in last in their capital, so they would like to your firm&#x27;s incentives to purchase more capital. So save the inquiry&#x27;s cap, too. And as a result, as a result in Chris Oh, capital forwarding over labor for like a capital to a biracial so and also it sounds, the new capital have some new technology. The test credits well actually contributes to shift the production function afterwards, so may have some new technology, and those of your technology even shook up production function show basically of a part ay, it&#x27;ll actually increased economic gross. So for party, you say that if the Congress pass along that allows taxpayers to reduce their income text by an amount of state. So&#x27;s taxi. Hey, so for this one is kind of like, uh, even the payment of the state so stacks the the taxpayer can get reduced on their income tax was, Think about. Is there Anya factor in force? Why it&#x27;s so the reason why we have economic gross, either because we have more capital and more labor and higher technology. But for this questions is can off like a deduct deduction on the state text. But there&#x27;s nothing related to any of those factors. So for this one, there&#x27;s no influence, I think not. Gross national catch part. See Marcie&#x27;s A. That the Congress provide more pounds to no interest loans to call a student this kind of a policy that is benefit show to call it student. So providing more false general interest loans to college students is likely to increase. Signal me girls because we know that caller students, our actual neighbors rights were more students receive college education, amount until favors or we think in their resources for human capital in Chris, so that will lead you economic growth in Chris

Alejandro Ruiz · Answer

Okay, so the economy is currently in a recession, and there&#x27;s, Ah, large recessionary gap. And there&#x27;s also a large government, a large government deficit. So the first part of the questions she&#x27;s asking us is this a structure deficit or cyclical? Well, look at the fact that there is a recession or gap there lessons now that your GDP is not equipped country people. And therefore it&#x27;s a cyclical deficit due to the recession or again, and then how my automatic fiscal policy changed the output gap. Well, we know that during the recession is going to be, um, an increase in unemployment, and this is going to the increasing unemployment benefits that is intended to stimulate and increase the real GDP. So this is something we&#x27;re going to try and decrease output gap. So, uh, because he&#x27;s trying to get real GDP close to potential GDP. So this what kind of I&#x27;m gonna try to close to close the output gap member part, see if there&#x27;s an increase in discretionary expenditure. How might this change structural deficit? Well, it would lead to a lower structural deficit by increasing that Rajan P. And that&#x27;s because there&#x27;s already going to be a structural deficit because GDP is going to be to the left of the potential GDP. So we&#x27;re gonna start off with some some structure deficit. But if you&#x27;re GDP increases, then this is going to lead to a decrease in the structural deficit.

Alejandro Ruiz · Answer

Okay, so the economy is in a recession and there&#x27;s a large recessionary gap, and we&#x27;re as to determine what are the fiscal policy actions that will take place, some for the automatic fiscal policy. There&#x27;s going to be more needs tested spending in the form of unemployment benefits and the recent presents, because there&#x27;s going to be a lot more unemployed people on the unemployment rate is going to go up because during the recession there&#x27;s a lot of people that are gonna be laid off. And what work then, for the discretionary fiscal policy there is going to it could be an increase in the government expenditures on goods and services in order to increase aggregate expenditure in the hopes of increasing GDP. And then, for the second part of the question, we&#x27;re asked to describe discretionary fiscal stimulus package that could be used without increasing the budget deficit. So for this one, lowering tax rates would definitely not re still but your deficit and at the same time I&#x27;ll push the aggregate demand curve to the right and in the hopes of increasing real GDP. So what are some risks of discretionary fiscal policy in this situation? Well, the main one is that it, uh there&#x27;s an increasing government expenditure then despite Lito according out effective investment, that what essentially leaked what? Decreasing real GDP and this will not be very effective in this.

Omkar Katta · Answer

In this video, we will be discussing the difference between expansionary fiscal policy and contractionary fiscal policy to begin. However, let&#x27;s first discuss fiscal policy in general, and then we&#x27;ll come back to the expansionary, contractionary distinction. Fiscal policy relates to the budgetary decisions that Congress can take in order to ensure that we have a healthy study economy. Now what do we mean exactly? When we&#x27;re talking about budgetary decisions? Well, that how all has to do with how the government spends its money and how it makes money. How can spend its money in a variety of ways? For example, infrastructure, for instance, it can. The government can decide to build bridges or even highways, but it can also spend its money through welfare programs such as Social Security benefits or unemployment benefits, and to fondle the spending. The government makes money by collecting taxes like income taxes or corporate or business taxes. So there are many ways in which the government can spend and collect money. But for clarity, let&#x27;s consider the next drop abstractly as ways in which the government can spend money and ways in which the government can collect money. I suppose we&#x27;re in the state of the world where the economy has faced a recession or maybe experienced heavy unemployment or is just generally on the decline. Then Congress wants to boost the economy by putting more money in the hands of the individual, and in that way the individual can spend money and activate the economy. These types of policies to correct for this decline fall under expansionary policies, and it effectively increases the aggregate demand curve and raises economic activity. This happens by increasing government spending and decreasing taxes increase in government spending, saying the form of infrastructure like building bridges and highways essentially puts more jobs out of the economy and people are able to work. And by providing MAWR in welfare programs, people will have more money to be able to spend. And so, by putting more hands, more money in the hands of individuals, the government is ableto kind of boost the economy, which is why we call it an expansionary policy. Now the cons of this is that it lowers government revenue and as it&#x27;s spending so much money, it&#x27;s going to have to increase the deficit and thereby increase the debt. So all of this was under the discussion that the economy has faced a recession. But what if it&#x27;s not doing that bad? What if it&#x27;s doing well? Well, potentially. There might be a state of the world in which the economy is growing too quickly. Now one might rightly ask, Why would a growing economy be bad? Well, we want our economy to grow. Of course, that&#x27;s what we want, but we don&#x27;t want it to grow too quickly. One of the consequences of extremely fast growth is unimpeded inflation, that is, the price levels rise, and in fact, they might rise even more quickly than we are able to adapt. And so Congress wants to control this growth and slow it down. And it can do this by enacting the opposite of expansionary policies. That is, it can enact contractionary policies. We want to shift the aggregate demand curve to the left by decreasing government spending and increasing taxes. Now, this is not really a favorable stance, Um, mainly because people prefer hearing that the government will be giving money to you. Not that they&#x27;re going to be increasing taxes and taking money away from you. So one of the reasons that contractionary policies are not that popular, said. It&#x27;s not that well supported. And if you&#x27;re a politician who&#x27;s incentive is to get elected? Well, maybe you might want to get more support by leaning towards expansionary policies. But by learning macro economics as you are right now, you&#x27;re becoming a more informed citizen by realizing that sometimes contractionary policies air better than expansionary policies. But other times, expansionary policies are indeed better than contractionary policies.

Ben Meadows · Answer

when the Fed buys bonds and open market operations, we need to think about what they&#x27;re actually doing. When the Fed sens. Traders to the open market. These traders have to use United States currency to buy bonds on the open market when they use these federal dollars on the open market. That increases the money supply as money flows from the Federal Reserve to the money supply. Now, if the Fed reduces the reserve requirement this what does this actually mean? This means that banks have to hold on to a less currency, which means that banks can then lend out more money. When banks lend out more money, the money supply goes up and you can think about more money being in people&#x27;s pockets. Now, if the fat increases the interest rate it pays on reserves, this is a little more nuanced. So when the Fed pays on the interest on this interest rate on reserves, the Fed is goingto pay banks more to hold on to more caps. So it&#x27;s going to pay banks told onto more cash. So because the banks like this, they&#x27;re going to hold on to that currency loan out less and so less money will be loaned out, which means that the money supply will be decreased. Next, it&#x27;s City Bank repays alone that it previously taken from the Fed. What does this mean? Well, this means that banks, in this case, City, City, bank it&#x27;s going to pay back It&#x27;s loan to the Federal Reserve. Well, that money was once out here in the money supply. So it flows along here and so we can see that that will actually decrease the money supply. Okay, let&#x27;s pretend that a rash of pickpocketing happens and people decide to hold on to a less currency. What is this actually going to do? Well, people are scared to hold on the cash. So what are people going to do? They&#x27;re going to put their money in a bank If they&#x27;re putting their money in the bank. That means that there&#x27;s less cash in their hands, more in the bank. And that means that banks convention out, loan out more money for mortgages and things like that. What is that going to do to the money supply? Well, that&#x27;s gonna increase the money supply. All right, imagine again. People here, they&#x27;re fearful of bank runs they&#x27;re going to try and pull all their money out of months. Okay, well, bankers are going to react to that, and they&#x27;re going to hold onto Mohr excess reserves. They&#x27;re gonna hold more money within the bank&#x27;s walls. What&#x27;s that going to do to the money supply? We&#x27;LL think about it, Banks, you&#x27;re gonna lend out less money. And so there&#x27;s going to be less money out there. So we&#x27;re going to think that that&#x27;s going to decrease the money supply. Lastly, if the Fed increases its target, open market operations increases its target for the federal funds rate. Remember the federal funds rate? That is the rate that banks loan one another when they are short on capture these very short term loans. So if the Fed is increasing its target, what does that mean? Well, if its target is to increase that rate so that it wants banks to have a higher interest rate that&#x27;s loaning one another, that means that they are trying to decrease the money supply. That&#x27;s the ultimate goal. But remember what the federal funds rate is. The Fed can&#x27;t actually control this explicitly. They have to engage open market operations that will help bring this rate up, so they&#x27;re going to take some of these actions if we&#x27;ve already talked about to try to raise the federal funds rate, all of which will decrease the money supply because as banks have to spend more money to loan each other short term cash, they&#x27;re going to just hold on to that money, and that&#x27;s going to decrease the money supply.

Problem

Use an aggregate demand and aggregate supply grap…

Problem 4 Medium Difficulty

Answer

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