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How do people’s expectations influence the extent of crowding out?
Why will the multiplier effect of government transfer payments such as child benefit, pensions and social security be less than the full multiplier effect given by government expenditure on goods and services. Will this ‘transfer payments multiplier’ be the same as the tax multiplier? (Clue: will the recipients of such benefits have the same mpcd as the average person?)
Show the effect of an increase in government expenditure by using (a) the injections and withdrawals diagram; (b) the income/expenditure diagram (see Figures 17.8 and 17.10).
Draw an injections and withdrawals diagram, with a fairly flat W curve. Mark the equilibrium level of national income. Now draw a second, steeper W curve passing through the same point. This second W curve would correspond to the case where tax rates were higher. Assuming now that there has been an increase in injections, draw a second J line above the first. Mark the new equilibrium level of national income with each of the two W curves. You can see that national income rises less with the steeper W curve. The higher tax rates are having a dampening effect on the multiplier.
How is the public-sector debt-to-GDP ratio likely to be affected by the state of the economy?
What primary balance-to-GDP ratio would a country need to run to sustain a debt-to-GDP ratio of 60 per cent if the real interest rate is 2 per cent and economic growth is 4 per cent?
From the late 1960s through to 2000 the share of capital spending in total public-sector spending in the UK fell. What could have driven this change and does the composition of public spending matter?
Why are historical and international comparisons of deficit and debt measures best presented as proportions of GDP?
Many governments around the world during the COVID-19 pandemic introduced job retention schemes allowing workers to be furloughed. Is this a use of fiscal policy to affect aggregate demand or aggregate supply?
Based on the analysis in Figure 21.15 what would the impulse response functions look like for output, unemployment, inflation and real and nominal interest rates?
Under what circumstances would a rise in potential real income not result in a fall in the NAIRU?
Based on the analysis in Figure 21.13, what would an impulse response function look like for the rate of inflation?
If expectations were formed rationally with no time lags, what would be the implications for short-run DAS curves and for the response to a rise in aggregate demand?
How will the composition of aggregate demand at point c\" and a\" in Figure 21.12(c) differ?
Draw a diagram similar to Figure 21.11 and illustrate the effect of a positive demand shock, showing how the effect differs according to whether a simple inflation rule is followed or a Taylor rule. Again assume that the weight attached to controlling inflation is the same with the simple rule and the Taylor rule.
The terms ‘doves’ and ‘hawks’ are frequently used to describe central banks. How do these terms relate to the Taylor rule?
Why might changes in the unemployment rate not match one-for-one changes in the output gap?
How would a change in the natural rate of unemployment or the level of potential national income affect the EAPC and DAS curve?
How would financial accelerator effects (see section 19.4) affect the DAD curve?
Why is it important in the Keynesian analysis for there to be a steady expansion of demand?
Some economists argue that recessions generate unemployment ‘scarring’ (i.e. various negative outcomes for the people unemployed and possibly broader society too). What might these scarring effects be and what is likely to be their longer-term impact?
Would it in theory be possible for this long-run Phillips curve to be horizontal or even upward sloping over part of its length?
How might the possibility of labour shirking affect the real wage firms are willing to pay?
Are hysteresis effects likely to be asymmetrical (i.e. of different magnitude) following an economic boom rather than an economic slowdown?
1. What effect did these developments have on (a) the Phillips curve; (b) the aggregate supply curve?
\r\n2. What policy implications follow from these arguments?
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