Abstract
This paper studies how the effects of government spending vary with the economic environment. Using a panel of OECD countries, we identify fiscal shocks as residuals from an estimated spending rule and trace their macroeconomic impact under different conditions regarding the exchange rate regime, public indebtedness, and health of the financial system. The unconditional responses to a positive spending shock broadly confirm earlier findings. However, conditional responses differ systematically across exchange rate regimes, as real appreciation and external deficits occur mainly under currency pegs. We also find output and consumption multipliers to be unusually high during times of financial crisis.
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Asked by venov74853 on coursehero.com Fiscal Policy Question 1 Which of the following would be an expansionary fiscal policy? A Placing a limit on government expenditures B Raising the income tax rate C Increasing the corporate tax rate D An increase in infrastructure spending E A decrease in defense spending
Question 2
What would be the net effect of the government increasing the taxes by $10 billion at the same time that it decreased spending by $5 billion? Assume a marginal propensity to save of 0.1.
A Decreasing aggregate demand by $40 billion
B Decreasing aggregate demand by $140 billion
C Increasing aggregate demand by $40 billion
D Increasing aggregate demand by $140 billion
E The impact on aggregate demand is indeterminate.
Question 3
Which of the following statements about fiscal policy is accurate?
A The tax multiplier has a greater impact than the spending multiplier.
B Government spending has a direct impact on short-run aggregate supply.
C It will decrease the inflation rate.
D It can only be used to correct a recessionary gap.
E There is a time lag between discretionary spending and its impact.
Question 4
Image transcription text
LRAS SRAS Price Level K PLA PLE - - AD, AD, $400 $640 Real GDP (Billions)...
Assume a marginal propensity to consume of 0.75. Which of the following fiscal policies could correct the economic situation above?
A Decreasing taxes by $60 billion
B Increasing taxes by $80 billion
C Increasing spending by $60 billion
D Decreasing spending by $80 billion
E Increasing spending by $240 billion
Question 5
What will be impact of an income tax increase on an economy's consumption spending, real output, and unemployment in the short run?
A Consumption will decrease, real output will decrease, and unemployment will increase.
B Consumption will increase, real output will increase, and unemployment will decrease.
C Consumption will increase, real output will decrease, and unemployment will increase.
D Consumption will increase, real output will increase, and unemployment will decrease.
E Consumption will decrease, real output will decrease, and unemployment will decrease.
Answered by ebbeward2 on coursehero.com
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