Use powerpoint to answer below questions.
1. Define and describe the concept of fiscal policy, focusing on what is
manipulated, by whom and for what reason
2. Why would economists argue that automatic stabilizers are an excellent tool
that instituted by government that can quickly fight a newly developing
recession
3. What is the difference between automatic stabilizers and discretionary fiscal
policy?
4. Discretionary fiscal policy, to be truly effective, must have three basic
characteristics. What are those three characteristics and why are they so
important?
5. When implementing discretionary fiscal policy the most difficult thing to do is
to get the magnitude, or dollar size, of the policy change just right. Why is
this so?
6. Economists argue that discretionary fiscal policy actions that involve spending
$100 billion would not have the same overall effect on the economy in the
short run as a $100 billion cut in taxes. Why so?
7. Which type of discretionary fiscal policy is likely to have the smallest overall
effect on GDP because of the low MPC related to the policy?
8. Some discretionary fiscal policy actions involve borrowing the money. Under
what conditions would a rise in government spending financed by borrowing
lead to very little, if any, increase in GDP?
9. Please state the ex ante Fisher Equation for interest rates. In this equation,
some of the components are ‘known values” and some are “unknown”.
Which are known or unknown, and why would this distinction matter?
10. What is the equation for the ex post value of the real rate of interest? Which, if
any of the components of this equation are unknown
11. Using the notions of ex ante and ex post interest rates, explain how a bank
could be expecting a huge return on its investments and end up with very
small real returns, especially in a high-inflation situation as we now find
ourselves.
Categories