Analyse how fiscal-policy tools and multipliers close output gaps, change short-run macroeconomic outcomes, and operate with decision and implementation lags.
Assume that Nepal is in long-run macroeconomic equilibrium and has an open economy.
Assume that at the short-run equilibrium shown on your graph in part B, Nepal is experiencing a 400 million rupee output gap. Policymakers in Nepal want to use discretionary fiscal policy to return the economy to full employment, and the marginal propensity to consume is 0.75. Calculate the minimum change and state the direction of change in government spending required to completely close the output gap in the short run.
Show your work.
Calculate the minimum change in government spending as a decrease of 100 million rupees and show your work.
Which of the following is true about changes in tax rates, changes in the level of government expenditures, and changes in the money supply?
They are automatic stabilizers.
They are tools of discretionary fiscal policy.
They have different lag times between implementation of a policy and its effects on aggregate demand.
They are favored equally by both classical and Keynesian economists to fine-tune the economy.
All are controlled by the Federal Reserve system.
C