Question

The economy initially starts in LRE. Canada enters a recession. Suppose the US government is influenced by Keyensian economic theory so it likes to actively manage business cycles. It decides to do fiscal policy.

What could the US government could do which would be appropriate fiscal policy?

["Lower taxes and decrease government spending", "Raise taxes and decrease government spending", "Appreciate the currency", "Raise taxes and lower investment", "Lower taxes and increase government spending"]      

Given that the US government uses appropriate fiscal policy to handle the fact that Canada entered a recession, what will happen to the government deficit?                            [ Select ]                       ["It can’t be determined", "It will fall because taxes will increase relative to spending", "It will grow because spending will increase relative to taxes"]      

Given that the US government uses appropriate fiscal policy to handle the fact that Canada entered a recession, in the long run                            [ Select ]                       ["GDP and price level will fall", "GDP and price level will be unchanged", "GDP will fall and price level will rise", "GDP will be unchanged but the price level will fall.", "GDP will rise and price level will fall"]      

Answer 1

The economy initially starts in LRE. Canada enters a recession. Suppose the US government is influenced by Keyensian economic theory so it likes to actively manage business cycles. It decides to do fiscal policy.

What could the US government could do which would be appropriate fiscal policy?

"Lower taxes and increase government spending"]

Given that the US government uses appropriate fiscal policy to handle the fact that Canada entered a recession, what will happen to the government deficit?

"It will grow because spending will increase relative to taxes"

Given that the US government uses appropriate fiscal policy to handle the fact that Canada entered a recession, in the long run                            [ GDP will fall and price level will rise",

Please give thumbs up