Author Question: Suppose fiscal policy makers pass a budget that cuts taxes in the current period and are expected to ... (Read 118 times)

luvbio

  • Hero Member
  • *****
  • Posts: 623
Suppose fiscal policy makers pass a budget that cuts taxes in the current period and are expected to cut taxes in the future. Use the IS-LM model to illustrate graphically and explain the effects of this policy on current output and the current interest rate.
 
  What will be an ideal response?

Question 2

When the unemployment rate is low, we would expect that
 
  A) the probability of losing a job is high.
  B) the probability of losing a job is low.
  C) the probability an unemployed individual will find another job is low.
  D) the separation rate will increase.



adf223

  • Sr. Member
  • ****
  • Posts: 304
Answer to Question 1

The cut in current T will cause disposable income to rise and current C to rise. This will cause the IS curve to shift right. The reduction in future expected taxes will, all else fixed, increase human wealth and current consumption. This will also cause the IS curve to shift right. As future T is cut, future Y will rise. This will increase both current C and I and, again, IS shifts to the right. The increase in future interest rates will have the opposite effect on C and I causing the IS curve to shift left. In theory, the effects on current output are ambiguous. The higher expected future interest rates have a negative effect on current demand. All other factors have the opposite effect.

Answer to Question 2

B



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
 

Did you know?

Anti-aging claims should not ever be believed. There is no supplement, medication, or any other substance that has been proven to slow or stop the aging process.

Did you know?

There are approximately 3 million unintended pregnancies in the United States each year.

Did you know?

Astigmatism is the most common vision problem. It may accompany nearsightedness or farsightedness. It is usually caused by an irregularly shaped cornea, but sometimes it is the result of an irregularly shaped lens. Either type can be corrected by eyeglasses, contact lenses, or refractive surgery.

Did you know?

A headache when you wake up in the morning is indicative of sinusitis. Other symptoms of sinusitis can include fever, weakness, tiredness, a cough that may be more severe at night, and a runny nose or nasal congestion.

Did you know?

A strange skin disease referred to as Morgellons has occurred in the southern United States and in California. Symptoms include slowly healing sores, joint pain, persistent fatigue, and a sensation of things crawling through the skin. Another symptom is strange-looking, threadlike extrusions coming out of the skin.

For a complete list of videos, visit our video library