For this question, assume that Ricardian Equivalence proposition does not hold. Briefly discuss the short-run, medium-run and long-run effects of a fiscal expansion (e.g. tax cut)
What will be an ideal response?
Answers could be quite long. In the short run, fiscal policy can affect the level of output, the composition of output, the price level, and financial market variables. In the medium run, changes in fiscal policy will not affect the level of output; however, they will affect the composition of GDP and financial market variables. So, a fiscal expansion would have no effect on output in the medium run. In the long run, fiscal policy will affect output. It will do so by affecting the level of national saving.
You might also like to view...
Refer to Scenario 14.1. Marco's dominant strategy will give him a net benefit of
A) $45. B) $75. C) $120. D) $150.
?There are two economically meaningful ways of slicing two-input production frontiers.
Answer the following statement true (T) or false (F)
With free trade between the United States and Canada, the United States exports tomatoes and Canada exports maple syrup. U.S. consumers ______
A. of tomatoes gain and Canadian consumers of maple syrup lose B. of both tomatoes and maple syrup gain more than either producer C. of maple syrup gain more than U.S. producers of maple syrup lose D. of tomatoes gain more than U.S. producers of tomatoes lose
Economists use what term to describe the want-satisfying power of a good?
A. demand B. marginal propensity to consume C. income elasticity D. utility