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Chap. 16

Chap. 16

1. If inflation is a major issue in the economy, what would be the correct fiscal policy response from an economic perspective? Why would members of Congress be unlikely to support such actions?

2.  Why is the tax multiplier smaller than the government spending multiplier?

3.  Explain how a larger government budget deficit increase the magnitude of the crowding-out effect?

4.  When an economy is already at full employment, what is the outcome of expansionary fiscal policies to employment, inflation, real output, and deficits (assuming no changes in tax rates)?

5. Explain the effects of the following actions on equilibrium income, assuming that the marginal propensity to consume is 0.8

a. Government purchases rise by $40 billion.

b. Taxes fall by $40 billion.

6. After reading the article found in the following site, post your comments on the economic impact of another Covid relief package. Do we need it? How can it stimulate the economy? (300 words)

https://www.cbpp.org/research/federal-budget/is-1-trillion-enough-for-a-new-economic-relief-package


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