Fill in the Blank QuestionFill in the blank question.Tax hikes, reductions in government spending, and a high-interest-rate policy would reduce total spending in the U.S. economy and, consequently, domestic .

To solve a recessionary gap, by using Fiscal Policy, the Federal government would decrease taxes and decrease government expenditure. Group of answer choicesTrueFalse

An increase in government spending may expedite recovery from a recession in the short​ run, but in the long​ run, this policy​ may: a. raise interest rates and reduce consumer expenditures on cars and new houses. b. make domestic businesses less competitive in international markets if the dollar appreciates in value. c. reduce investment in new capital. d. All of these options are correct.

Over the past few years we have heard arguments between both parties over the need to reduce the federal government's spending. Consider the role that Congress plays in determining the effectiveness of fiscal policy within the U.S. economy as a stabilizing force during periods of economic uncertainty. Determine whether the federal government can drastically reduce government spending in order to curb inflation. In your response consider the political fallout that could impact elected members of Congress.

Reduced Government Spending: Government spending is a component of aggregate demand. In the Keynesian framework, a reduction in government spending will shift the aggregate demand curve to the left. This would typically lead to a decrease in the overall output (or GDP) as government spending is a direct component of GDP calculation. Effect on Output: A decrease in government spending reduces aggregate demand, which, in a Keynesian cross model, is represented by a downward shift in the aggregate expenditure line. This results in a lower equilibrium output. Effect on Exports and Imports: In the short run, a decrease in output can lead to a decrease in imports because domestic consumers and businesses are spending less overall, including on foreign goods. Exports may remain unchanged in the immediate short run since they are more influenced by foreign demand than domestic policy changes. However, if the currency depreciates due to the reduction in demand, this could eventually make exports more competitive abroad and could potentially increase exports. Effect on Net Exports (NX): Net exports (NX) are calculated as exports minus imports. If imports decrease while exports either increase or remain constant, NX would rise, all else being equal. The NX line on a graph that plots net exports against domestic income would shift upwards due to a reduction in imports or an increase in exports.

The​ interest-rate effect is described as an increase in the price level​ which: a. Lowers the interest​ rate, thereby reducing government spending. b. Raises the interest​ rate, thereby reducing government spending. c. Raises the interest​ rate, thereby reducing investment and consumption spending. d. Lowers the interest​ rate, thereby reducing investment and consumption spending.