Assignment:
Question 1. Explain whether the economy will expand, contract, stay the same, or inflate with each of the following fiscal actions taken alone. Assume the economy is not at full employment unless stated otherwise.
a. Congress votes and sends a $600 tax credit to each taxpayer.
b. Households are taxed an extra 15 percent, and the government spends the entire amount on purchases of goods and services
c. Congress allows many new income tax deductions when the economy is at full employment.
d. Although Congress intends to balance the budget, a deficit occurs.
e. At the end of a war, defense expenditures drop dramatically but are replaced by domestic spending programs for health and education.
f. Congress decides to decrease defense expenditures with no increase in other spending programs.
g. Congress increases expenditures for transfer payments at the same time it reduces spending on highways and bridges by the same amount.