Macro HW on Keynesian and Fiscal Policy Any Takers?

Homework #12P

Fiscal Policy

a) Draw expansionary fiscal policy that is applied when the economy is in a recessionary gap using the AD/AS model. Show how the multiplier works. What are the two fiscal actions that the government could take to implement this policy?

b) Draw contractionary fiscal policy that is applied when the economy is in an inflationary gap using the AD/ AS model? Show how the multiplier works. What are the two fiscal actions that the government could take to implement this policy?

c) Draw expansionary fiscal policy that is applied when the economy is in a recessionary gap using the TE/TP model (no numbers). What are the two fiscal actions that the government could take to implement this policy?

d) Draw contractionary fiscal policy that is applied when the economy is in an inflationary gap using the TE/TP model (no numbers). What are the two fiscal actions that the government could take to implement this policy?

e) Describe and graph how an income tax affects potential GDP and aggregate supply. Indicate the income tax wedge. (2 graphs) How do taxes on expenditures affect the income tax wedge?

f) Draw the Laffer curve. Show where the maximum tax revenues would be. From this point does an increase in tax rates increase or decrease tax revenues?