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Allushta [10]
4 years ago
11

An economy is operating with output $300 billion above its natural level, and fiscal policymakers want to close this expansionar

y gap. The central bank agrees to adjust the money supply to hold the interest rate constant, so there is no crowding out. The marginal propensity to consume is 4/5, and the price level is completely fixed in the short run.
To close the expansionary gap, the government would need to _________ (increase or decrease) spending by _____ billion.
Business
1 answer:
NARA [144]4 years ago
3 0

Answer:

The government will need to reduce spending by $60 billion

Explanation:

Expansionary gap is defined as a situation where the total output of an economy exceeds its potential output. That is the economy is performing above its long term potential as measured by GDP.

When this occurs the government will need to reduce spending to match output with economic needs.

Marginal propensity to consume is the proportion of an individual's income that is reserved for consumption.

In this case it is 4/5. This means individuals are willing to spend 4/5 of their income on consumption

The amount needed by the economy to meet consumption is:

Amount consumed= (4/5) * 300 billion

Amount consumed= $240 billion

Therefore

Excess cash= 300 billion - 240 billion = $60 billion

The government will need to reduce spending by $60 billion

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Answer:

All answers are correct except Money Supply

Explanation:

Fiscal policy affects aggregate demand through government spending and taxes. Government may increase taxes to increase revenue or discourage the consumption of a product. On the flipside, they may reduce taxes to stimulate spending, redistribute income, increase aggregate demand among other objectives.

Money supply is a monetary policy and it is used by the central bank to achieve certain objectives (reduce inflation, stimulate growth, increase demand, etc.)

Government spending is a fiscal policy that government uses to achieve a set of objectives (i.e. to supply goods and services that are not provided by the market or private sector – construct bridges, provide health facilities, social programmes for the poor among others).

Taxes – Tax is a fiscal policy tool used by the government to generate revenue, encourage or discourage the consumption of certain products or affect aggregate demand through income redistribution.  

Trade policy could be in the form taxes (i.e. tariffs, import duties, custom duties among others). Trade policy is a fiscal policy as government can use it to control aggregate demand by placing embargo on the importation of certain products to reduce the demand of such products in the local economy.

5 0
4 years ago
The cash flow statement should be evaluated by examining the cash flow pattern suggested by the:__________
galina1969 [7]

Answer:

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A cash flow statement is a representation of the cash inflows and outflows from various activities in a business. The three main sources of cash flow are operating activities, investing activities, and financing activities.

Operating activities include daily production activities that a business usually engages in like manufacturing or selling.

Financing activities are those that affect the capital base of the organisation.

Investing activities are those that involve purchase or sale of assets, and investment in securities.

To get a better knowledge of the cash flow of the organisation we will need to evaluate subtotals of each of these three sections

6 0
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What classifications are possible for a company's activities based on Porter's value chain model?
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Suppose the federal government provides wheat farmers with a price floor above the market equilibrium price of wheat, creating a
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