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- Given an expansionary gap, what two fiscal tools can policy makers use to encourage the economy to return to full-employment?
- Given a recessionary gap, what two fiscal tools can policy makers use to encourage the economy to return to full-employment?
- Assume an economy is in recession and is experiencing an output gap of $500 billion (i.e. actual GDP is less than Potential GDP). If the Marginal Propensity to Consume is .8, how much “stimulus” government spending would be needed to return the economy to full employment? Explain how you reached these results.
- What are the arguments as to why allowing the Federal government to run a deficit won’t cause the economy to go bankrupt?
