Can someone help me do 43-46 3) Consider the same initial facts as in Question (

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Can someone help me do 43-46

3) Consider the same initial facts as in Question (40). In addition assume that the "full- employment" level of RGDP is $6,800 billion. Gargantua has a: (a) "Output gap" of $80 billion and a "recessionary gap" of $400 billion. (b) Recessionary gap of $80 billion and an output gap of $400 billion (c) Output gap of $640 billion and a recessionary gap $400 billion (d) Output gap of 0.8 and a recessionary gap 0.2 e Output gap of 0.2 and a recessionary gap 0.8 G4) Fiscal policy as a stabilization tool is out of fashion, but one of these days we might run out of monetary policy tools. It is therefore still worth while to ask, what fiscal policy would consist of. To fight recession the national govemment would: (a) Raise taxes and/or lower expenditures (b) Lower taxes and/or raise expenditures. Raise taxes and/or raise expenditures (d) Lower taxes and/or lower expenditures e) Raise government investment expenditures but not consumption (45) Economists who stress the macroeconomic importance of the "crowding-out" effect assert that: (a) High levels of government spending and taxation "crowd out" private (b) Large government social programs "crowd out" private charity and (e) High interest rate policies by the Fed "crowd out" private investment (d) Government borrowing to finance "countercyclical" budget deficits leads (c) All of the above initiative and reduce economic growth. volunteerism and lead to inefficiency in the private sector and reduce economic growth. to higher interest rates and therefore "crowds out" private investment. If the policy makers at the Fed fear that inflation is about to break out, they will enter the "open market" and: (46) Buy securities; the money supply (M) will all and interest rates will rise. Buy securities; M will rise and interest rates will fall. (a) (b) (c) (d) e Sell securities; M will rise and interest rates will fall. Sell securities; M will fall and interest rates will rise. Sell securities; M will fall and interest rates will fall. Note: "M will fall" may be shorthand for "will rise more slowly than before" and M will rise" may be shorthand for "will rise more rapidly than before.

Explanation / Answer

(43) Data is missing.

(44) (b)

To fight a recession, expansionary fiscal policy tools like lowering tax and/or raising government spending are used.

(45) (d)

When government increases its deficit (by lowering tax and/or raising government spending), government finances such deficit using market borrowing. Higher borrowing raises interest rate, which lowers investment demand. This is called crowding out effect.

(46) (d)

Higher inflation can be tamed by lowering aggregate demand, which can be done by decreasing money supply by open market sale of government securities, which raises interest rate and lower investment demand, thus lowering aggregate demand.

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