Question

How might fiscal policy be used to correct a recessionary​ gap? A. The exchange rate would...

How might fiscal policy be used to correct a recessionary​ gap?

A. The exchange rate would be adjusted to encourage imports.

B. Taxes would be cut to stimulate aggregate demand.

C. The exchange rate would be adjusted to discourage imports.

D. The interest rate would be adjusted to encourage saving.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The recessionary gap arises when actual GDP is less than the potential GDP.

For filling this gap government uses expansionary fiscal policy. In this goverment either increase its spending or cuts taxes.

Since the expansionary fiscal policy means either an increase in the government expenditure or decrease in the tax. This policy is used for increasing aggregate demand.

Hence taxes would be cut to stimulate aggregate demand and it will correct the recessionary gap.

hence option B is the correct answer.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Question 2: Fiscal Policy Suppose the economy is in a recessionary gap, and the government reponds...
Question 2: Fiscal Policy Suppose the economy is in a recessionary gap, and the government reponds by conducting an expansionary fiscal policy. a. Suppose the marginal propensity to consume is 0.8. Calculate the effect of a $1,000 increase in government purchases on real GDP, and then calculate the effect of a $1,000 tax cut on real GDP. b. Why does a $1,000 tax cut generate a smaller multiplier effect than a $1,000 increase in government purchases?
1. The government engages in expansionary fiscal policy in order to close a recessionary output gap....
1. The government engages in expansionary fiscal policy in order to close a recessionary output gap. In the long-run we would expect to witness A. Consumption, Investment and Net-exports fall by the amount government expenditure increased by. B. Price levels to fall. C. Taxes to fall in the future. D. Consumption, Investment and Net-exports rise by the amount government expenditure decreased by.
Is a recessionary or inflationary gap bad for an economy? Have you ever wondered how the...
Is a recessionary or inflationary gap bad for an economy? Have you ever wondered how the federal government and the Federal Reserve react to smooth out recessionary and inflationary gaps? In this activity, you will explore the concepts of fiscal policy and the attempts the U.S. government takes when the U.S. economy is in a recessionary or inflation gap. You will discuss the concepts of aggregate supply and aggregate demand to determine how the U.S. economy can work its way...
1. Suppose that there is a recessionary gap. Discuss one fiscal policy action that might eliminate...
1. Suppose that there is a recessionary gap. Discuss one fiscal policy action that might eliminate it. Show how the action taken will bring about the desired result? 2. Define the term the Marginal Propensity to Consume. What is the relationship between the MPC and the multiplier? 3. What are the major difference between the assumption made by Say and those made by Keynes? 4. What are United States coins called token Money? What is meant by near money? 5....
Assume that there is a recessionary gap in Shadowland. The government of Shadowland might eliminate the...
Assume that there is a recessionary gap in Shadowland. The government of Shadowland might eliminate the gap by doing all of the following except an increase in government spending. a decrease in personal taxes. an increase in reserve requirement. an decrease in discount rate. an open market purchase. Assume disposable income for an economy is $10,000, consumption is $7,500, and the marginal propensity to save (MPS) is .25. If disposable income increases by $1,000, what is the amount of consumption...
Neoclassical economists believe that __________________. fiscal policy used to stimulate aggregate demand will not lead to...
Neoclassical economists believe that __________________. fiscal policy used to stimulate aggregate demand will not lead to economic growth the economy will self correct in a recession the way to grow the economy is by growing productivity through investments in human and physical capital and technology improvements All of the above.
1.High interest rates might………….purchasing a house or a car but at the same time high interest...
1.High interest rates might………….purchasing a house or a car but at the same time high interest rate might ……………….saving. A)  discourage; encourage B)  discourage; discourage C) encourage; encourage D)  encourage; discourage 2.An increase in interest rates might ………..saving because more can be earned in interest income. A) encourage B) discourage C) disallow D) invalidate 3.   Everything else held constant, an increase in interest rates on student loans ……………….. A)  increases the cost of a college education. B)  reduces the cost of a college education. C)...
Under a flexible exchange rate regime, the government decides to conduct expansionary fiscal policy by increasing...
Under a flexible exchange rate regime, the government decides to conduct expansionary fiscal policy by increasing government spending a. What happens to equilibrium output, the interest rate, and the exchange rate? Explain and show using the appropriate graphs. b. What happens to the components of aggregate demand: consumption, investment, government spending and exports?
With a flexible exchange rate and free capital mobility, an expansionary fiscal policy is: A) Ineffective...
With a flexible exchange rate and free capital mobility, an expansionary fiscal policy is: A) Ineffective because a higher domestic interest rate will crowd out investment B) Very effective because domestic interest rate will not rise and hence crowding out of investment cannot occur C) Ineffective because the exchange rate will appreciate, crowding out net exports D) Very effective because both domestic demand and net exports will rise E) Both B. and D.
33. Which of the following is true for an expansionary fiscal policy? a. It leads to...
33. Which of the following is true for an expansionary fiscal policy? a. It leads to a fall in the interest rate. b. It has no impact on the aggregate output. c. It causes an increase in the aggregate demand. d. It increases the level of imports. 34. An increase in the domestic price level will: a. shift the IS curve to the right. b. shift the LM curve to the right. c. shift the FE curve to the left....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT