Suppose the government pursues expansionary fiscal policy by lowering taxes. What are the expected demand-side effects? What are the possible offsets to the demand-side effect? How might supply-side effects change these results?
What will be an ideal response?
Aggregate demand increases as consumption spending increases after the increase in disposable income. Crowding out and the effect of the Ricardian equivalence theorem can offset this if the government must borrow more and interest rates increase and if people anticipate higher future taxes they may increase saving. The supply-side effect may be to generate more productivity as people have a greater incentive to work with the lower tax rates. Tax revenues may not decrease. If the government does not have to borrow more, interest rates don't change, and there is no crowding out.
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Indicate whether the statement is true or false
Globalization has ________ the price of many goods, which has caused the value marginal product of unskilled labor to ________ and the demand for unskilled labor to ________
A) decreased; decrease; decrease B) decreased; decrease; increase C) decreased; increase; increase D) increased; increase; increase
What sort of productivity shocks would cause lower real wage growth and result in lower growth in labor productivity?
A) productivity shocks which decrease supply of labor given the demand for labor B) productivity shocks which increase supply of labor given the demand for labor C) productivity shocks which increase demand for labor given the supply of labor D) productivity shocks which decrease demand for labor given the supply of labor
Assume the price of beer is $4, the price of pizza is $10 and the consumer's income is $250. Which consumption bundle will NOT be the consumers choice?
A) 5 beers, 5 pizzas B) 0 beers, 25 pizzas C) 25 beers, 15 pizzas D) None of the bundles will be chosen.