This topic contains a solution. Click here to go to the answer

Author Question: How will an increase in federal government spending without an increase in taxes affect real GDP and ... (Read 486 times)

misspop

  • Hero Member
  • *****
  • Posts: 540
How will an increase in federal government spending without an increase in taxes affect real GDP and the price level in the short run in a closed economy and in an open economy?
 
  What will be an ideal response?

Question 2

In an open economy, the government purchases multiplier will be smaller the
 
  A) larger the marginal propensity to consume. B) smaller the marginal propensity to import.
  C) larger the tax rate. D) All of the above are correct.



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

jessofishing

  • Sr. Member
  • ****
  • Posts: 329
Answer to Question 1

In a closed economy, an expansionary fiscal policy directly increases aggregate demand, leading to an increase in real GDP and in the price level. An expansionary fiscal policy also results in the crowding out effect as higher interest rates lower domestic investment and purchases of consumer durables. In an open economy, an expansionary fiscal policy also directly results in an increase in aggregate demand and, therefore, an increase in real GDP and in the price level. However, in addition to lower domestic investment, higher interest rates in an open economy also lead to an increase in the country's foreign exchange rate (when stated in terms of foreign currency per domestic currency), which decreases net exports. The crowding out effect in an open economy is therefore larger than in a closed economy.

Answer to Question 2

C




misspop

  • Member
  • Posts: 540
Reply 2 on: Jun 29, 2018
Wow, this really help


peter

  • Member
  • Posts: 330
Reply 3 on: Yesterday
YES! Correct, THANKS for helping me on my review

 

Did you know?

Chronic marijuana use can damage the white blood cells and reduce the immune system's ability to respond to disease by as much as 40%. Without a strong immune system, the body is vulnerable to all kinds of degenerative and infectious diseases.

Did you know?

Amoebae are the simplest type of protozoans, and are characterized by a feeding and dividing trophozoite stage that moves by temporary extensions called pseudopodia or false feet.

Did you know?

Approximately 70% of expectant mothers report experiencing some symptoms of morning sickness during the first trimester of pregnancy.

Did you know?

The ratio of hydrogen atoms to oxygen in water (H2O) is 2:1.

Did you know?

More than 4.4billion prescriptions were dispensed within the United States in 2016.

For a complete list of videos, visit our video library