Government and Fiscal Policies

Assessment

This assessment addresses how the government utilizes fiscal policy instruments (tools) to stabilize the economy and to achieve full employment, control inflation, and encourage economic growth.

This assessment assesses your knowledge on the following Course Outcome:

BU204M4-4: Examine how fiscal policy is used to mitigate negative impacts on the national economy.

Suppose the economy of a hypothetical country, Woodland, has reached its long-run macroeconomic equilibrium when each of the following aggregate demand shocks occurs.

1. The economy of a hypothetical country, Woodland, has been stable for two or three years with very low unemployment. Wages have gradually increased during this time. Now stock market prices begin significant increases, causing peoples’ investments, such as their retirement accounts, to increase in value. People feel very good about the future and use their new-found wealth to buy things that they had been hesitant to purchase in the past. Given this scenario, answer each of the following questions.

a. What kind of economic gap will start to occur (inflationary or recessionary)?

(Enter response here.)

b. What kind of fiscal policy might help stabilize Woodland’s economy (expansionary or contractionary)?

(Enter response here.)

c. What three specific fiscal policy tools does Woodland’s government have available?

(Enter response here.)

d. What would be the likely impact on Woodland’s national budget and national debt from the use of these fiscal policy tools?

(Enter response here.)

e. How would the use of these fiscal policy tools stabilize Woodland’s economy?

(Enter response here.)

2. The economy of a hypothetical country, Woodland, has been stable for two or three years with very low unemployment. Wages have gradually increased during this time. Now an aggressive policy of increasing tariffs on foreign goods imported into Woodland results in retaliatory tariffs from the other countries against Woodland’s products and services. This causes great loss of business in Woodland and results in significant unemployment. Given this scenario, answer the following questions.

a. What kind of economic gap will start to occur in Woodland (inflationary or recessionary)?

(Enter response here.)

b. What kind of fiscal policy might be helpful to stabilize Woodland’s economy (expansionary or contractionary)?

(Enter response here.)

c. How should these fiscal policy tools be used to maximize their effect in stabilizing the economy?

(Enter response here.)

d. How would the use of these fiscal policy tools likely impact Woodland’s national budget and national debt?

(Enter response here.)

e. How would the use of these fiscal policy tools stabilize Woodland’s economy?

(Enter response here.)

f. Which fiscal policy tool would the government use for maximum impact on the economy? Why?

(Enter response here.)

3. Assume that in the hypothetical country, Woodland, coal mining is a significant industry that employs a high proportion of the country’s workforce.

Describe:

  • how a significant decline in coal mining, as the country attempts to switch to environmentally safer production, can ripple through the entire economy,
  • how the government of Woodland can use fiscal policy tools to combat negative effects, and
  • which fiscal policy tools you would recommend and why.

(Enter response here.)

Book:

Krugman, P., & Wells, R. (2020). Macroeconomics (6th Edition). Macmillan Higher Education.

Minimum Submission Requirements

  • Your paper must be written in Standard English and demonstrate exceptional content, organization, style, grammar, and mechanics.
  • Your writing should be well ordered, logical, and unified, as well as original and insightful.
  • You should paraphrase the material and use in-text citations to justify your discussion. Avoid using quotations. Ensure you are properly paraphrasing from your sources. For a refresher on paraphrasing, view this short video on paraphrasing and explore the additional resources prior to starting your assessment. You can access tutorials, how-to videos, tutoring services, and more by visiting the Academic Success Center.
  • You must include one high-quality source, which can be your textbook. Additional sources can be current Purdue Global Library sources. Peer-reviewed academic articles, articles published in journals, textbooks, and library resources found in the “ProQuest ABI/Inform Collection” database from the Library are examples of high-quality resources. For additional help locating ABI/Inform sources, review How to Access the ABI/Inform Database.
  • Respond to the questions in a thorough manner, providing specific examples of concepts, topics, definitions, and other elements asked for in the questions. Your paper should be highly organized and focused.
  • Be sure to include references for all sources and cite them using in-text citations where appropriate. Your sources and content should follow the current APA citation style. Review the writing resources for APA formatting and citation found in Academic Tools. Additional writing resources can be found within the Academic Success Center.
  • Your paper submission should:
    • be in the template provided; and
    • be free of spelling or punctuation errors.

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