Explore BrainMass
Share

Explore BrainMass

    The multiplier

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    1.) While deciding that the country is in a recession, what are the
    three tools of fiscal policy that can alleviate a recession?

    2.) What fiscal policy tools are available to combat inflation within
    an economy?

    3.) What is the definition of a budget deficit?

    4.) How does a government finance a budget deficit?

    5.) What choices are available for a government with a budget surplus?

    6.) What is the definition of the Multiplier?

    7.) If the Multiplier is 5, what is the impact on GDP
    in this illustration if government spending (G) increase by $10
    billion?

    © BrainMass Inc. brainmass.com October 10, 2019, 12:03 am ad1c9bdddf
    https://brainmass.com/economics/fiscal-policy/multiplier-fiscal-policy-277312

    Attachments

    Solution Preview

    1.) While deciding that the country is in a recession, what are the three tools of fiscal policy that can alleviate a recession?

    There are only two tools that the government has to move us out of the recession: reduce taxes, or increases spending, or do the both. Some people do say that moving the budget towards a bigger deficit is another way, but that can be done only if you reduce taxes, increase spending, or do both. Reducing taxes increases the disposable income, and hence induces households and firms to spend more. This increases aggregate demand and pushes the economy out of a recession. The same thing happens when the government increases spending.

    2.) What fiscal policy tools are available to combat ...

    Solution Summary

    The multiplier is defined in addition to other concepts in fiscal policy. How the government finances a budget deficit is defined.

    $2.19