contractionary gap and inflationary gap

Topic: Macroeconomics Questions Order Description Macroeconomics Source: Sexton, R. (2011). Exploring Macroeconomics. Please Answer These Questions: Wk.8 (275 Words) 1. Explain the effects of the following actions on equilibrium income. a. Government purchases rise by $20 billion. b. Taxes fall by $20 billion. Assume that the marginal propensity to consume is 0.8. 2. Explain how fiscal policy can be used to close the (a) contractionary gap and (b) inflationary gap. 3. Why does a larger government budget deficit increase the magnitude of the crowding-out effect? 4. When an economy is already at full employment, what is the outcome of expansionary fiscal policies to employment, inflation, real output, and deficits (assuming no changes in tax rates)? 5. Why doesn’t the government print money in order to solve its debt problems? 6. How serious is the national debt to our economic stability? 7. What is the common method of financing budget deficit? Wk.9 (275 Words) 1. What is fiat money? Why is fiat money important in the United States today? 2. Why is the money multiplier considered to be a potential multiplier rather than an indication of exactly how much multiplication should be expected? 3. What are the inherent disadvantages of a barter system? 4. What are money market mutual funds? 5. 5. Calculate M1 and M2 using details from the table given below. Value (in millions) Currency $75 Checkable deposits 25 Traveler’s checks 10 Savings deposits 125 Small-denomination time deposits 75 Noninstitutional money market mutual fund shares 50 Money market deposit accounts 25 6. What is a fractional reserve system? 7. If you deposit $8,000 in a bank, calculate how much the bank must keep as required reserves and how much it can loan out if the required reserve ratio was 5 percent. If it was 8 percent? 13 percent? 26 percent? 8. Name four of the six primary functions of the central bank. 9. Outline to the policy choices for contractionary and expansionary options of the Fed.

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