Question

ECON!!! NEED HELP QUICK 50 PTS!!!

For the next two questions, come up with a scenario, using your knowledge of fiscal policy, that could help the government out of the situation described. Your answer must include: Chosen fiscal policy, effects on GDP and affected components ot GDP. (4 points each)
The stock market has crashed and nobody is out spending money in stores due to fear of economic collapse. You have been asked by the government to use your knowledge of fiscal policy to help them out of this crisis. In your solution make it clear your recommendation and explain how this recommendation will help, covering all criteria above.
Your answer

The government has created too many jobs by trying to get us out of the recession. Now there is too much money in circulation causing massive inflation.
The government has turned solely to you as they believe your knowledge of fiscal policy is unmatched. With your deep extensive knowledge of fiscal policy, help guide this government, recommending a solution with an explanation as to how this recommendation wil help, covering all criteria above.

Answer 1

A) One fiscal policy that the government could use to help address the situation described is increased government spending. By increasing its own spending, the government can help to stimulate the economy and offset the negative effects of the stock market crash and lack of consumer spending. This could include investing in infrastructure projects, providing aid to individuals and businesses, or implementing other programs designed to boost economic activity.

Increased government spending would have a positive effect on GDP, as it would directly contribute to the total output of goods and services in the economy. It would also have a positive impact on the affected components of GDP, such as consumer spending, business investment, and exports. This would help to reverse the negative effects of the stock market crash and consumer fear, and help the economy to recover.

Overall, increased government spending is a fiscal policy that could help the government address the situation described. By boosting economic activity, it would have a positive effect on GDP and the affected components of GDP, and help to mitigate the negative effects of the stock market crash and consumer fear.

B) One fiscal policy that the government could use to help address the situation described is contractionary fiscal policy. This involves reducing government spending and/or increasing taxes in order to decrease the amount of money in circulation and reduce the rate of inflation. By reducing the supply of money in the economy, contractionary fiscal policy can help to decrease the overall level of demand and bring inflation under control.

Contractionary fiscal policy would have a negative effect on GDP in the short term, as it would reduce the total output of goods and services in the economy. However, in the long term, it could help to stabilize prices and prevent the economy from overheating, which would ultimately be beneficial for overall economic growth.

Contractionary fiscal policy would also have a negative impact on the affected components of GDP, such as consumer spending, business investment, and exports. However, these effects would likely be temporary, as the policy would help to bring inflation under control and restore confidence in the economy.

Overall, contractionary fiscal policy is a fiscal policy that could help the government address the situation described. By reducing the supply of money in the economy, it would help to decrease the rate of inflation and restore stability to the economy. While it would have negative effects on GDP and the affected components of GDP in the short term, these effects would ultimately be beneficial for the long-term health of the economy.