Part -1:
1. Describe the discretionary fiscal policies to close a recessionary gap and an expansionary gap
1. (Fiscal Policy) Define fiscal policy. Determine whether each of the following, other factors held constant, would lead to an increase, a decrease, or no change in the level of real GDP demanded:
a. A decrease in government purchases
b. An increase in net taxes
c. A reduction in transfer payments
d. A decrease in the marginal propensity to consume
2. (Changes in Government Purchases)Assume that government purchases decrease by $10 billion. with other factors held constant, including the price level. Calculate the change in the level of real GDP demanded for each of the following values of the MPC. Then, calculate the change if the government. instead of reducing its purchases, increased autonomous net taxes by $10 billion.
a. 0.9
b. 0.8
c. 0.75
d. 0.6
3. shows that increased government purchases, with taxes held constant, can eliminate a recessionary gap. How could a tax cut achieve the same result?
9. (Evolution of Fiscal Policy) What did classical economists assume about the flexibility of prices, wages. and interest rates? What did this assumption imply about the self-correcting tendencies In an economy in recession? What disagreements did Keynes have with classical economists?
Part -2
1. Summarize how federal spending priorities have changed since the 1960s
2. (The Federal Budget Process) Why does the budget require a forecast of the economy? Under what circumstances would actual government spending and tax revenue fail to match the budget as approved?