//*******************************************
//****** Section econ21/macro-09 specific js
//===== Section 9 figures ro resize
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var imagesMedium = "krugmanwellsmodulesecon3-sect21-figure-9,krugmanwellsmodulesecon3-sect21-figure-10,krugmanwellsmodulesecon3-sect21-figure-16,";
var imagesLarge = "krugmanwellsmodulesecon3-sect21-figure-19,";
var imagesXlarge = "krugmanwellsmodulesecon3-sect21-figure-30,krugmanwellsmodulesecon3-sect21-figure-36,";
var imagesXXlarge = "";
//==== Section 9 answers ======================
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m66-cyu-1a'] = "This is a contractionary fiscal policy because it is a reduction in government purchases of goods and services.";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m66-cyu-1b'] = "This is an expansionary fiscal policy because it is an increase in government transfers that will increase disposable income.";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m66-cyu-1c'] = "This is a contractionary fiscal policy because it is an increase in taxes, which will reduce disposable income.";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m66-cyu-2'] = "Federal disaster relief that is quickly disbursed is more effective at stabilizing the economy than legislated aid because there is very little time lag between the time of the disaster and the time when relief is received by victims. In contrast, the process of creating new legislation is relatively slow, so legislated aid is likely to entail a time lag in its disbursement, potentially destabilizing the economy.";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m66-cyu-3a'] = "An economy is overstimulated when an inflationary gap is present. This will arise if expansionary fiscal policy is implemented when the economy is currently in long-run macroeconomic equilibrium. This shifts the aggregate demand curve to the right, in the short run raising the aggregate price level and aggregate output and creating an inflationary gap. Eventually, nominal wages will rise and shift the short-run aggregate supply curve to the left, and aggregate output will fall back to potential output. This is the scenario envisaged by the speaker.";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m66-cyu-3b'] = "No, this is not a valid argument. When the economy is not currently in long-run macroeconomic equilibrium, expansionary fiscal policy does not lead to the outcome just described. Suppose a negative demand shock has shifted the aggregate demand curve to the left, resulting in a recessionary gap. Expansionary fiscal policy can shift the aggregate demand curve back to its original position in long-run macroeconomic equilibrium. In this way, the short-run fall in aggregate output and deflation caused by the original negative demand shock can be avoided. So, if used in response to demand shocks, fiscal policy is an effective policy tool.";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m66-ct-1'] = "Your graph should look like this.
Expansionary";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m66-ct-2'] = "Decrease taxes, increase government purchases of goods and services, or increase government transfers";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m67-cyu-1'] = "A $500 million increase in government purchases of goods and services directly increases aggregate spending by $500 million, which then starts the multiplier in motion. It will increase real GDP by $500 million × 1/(1 − MPC). A $500 million increase in government transfers increases aggregate spending only to the extent that it leads to an increase in consumer spending. Consumer spending rises by MPC × $1 for every $1 increase in disposable income, where MPC is less than 1. So a $500 million increase in government transfers will cause a rise in real GDP only MPC times as much as a $500 million increase in government purchases of goods and services. It will increase real GDP by $500 million × MPC/(1 − MPC).";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m67-cyu-2'] = "If government purchases of goods and services fall by $500 million, the initial fall in aggregate spending is $500 million. If there is a $500 million tax increase, the initial fall in aggregate spending is MPC × $500 million, which is less than $500 million because some of the tax payments are made with money that would otherwise have been saved rather than spent.";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m67-cyu-3'] = "Boldovia will experience greater variation in its real GDP than Moldovia because Moldovia has automatic stabilizers while Boldovia does not. In Moldovia the effects of slumps will be lessened by unemployment insurance benefits, which will support residents’ incomes, while the effects of booms will be diminished because tax revenues will go up. In contrast, incomes will not be supported in Boldovia during slumps because there is no unemployment insurance. In addition, because Boldovia has lump-sum taxes, its booms will not be diminished by increases in tax revenue.";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m67-ct-1'] = "$50 million
multiplier = 1/(1 − MPC) = 1/(1 − 0.75) = 1/0.25 = 4
change in G × 4 = $200 million
change in G = $50 million";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m67-ct-2'] = "10
$20 million × multiplier = $200 million
multiplier = 200/20 = 10";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m67-ct-3'] = "0.1
1/(1 − MPC) = 1/MPS = 10
MPS = 0.1";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m68-cyu-1'] = "The actual budget balance takes into account the effects of the business cycle on the budget deficit. During recessionary gaps, it incorporates the effect of lower tax revenues and higher transfers on the budget balance; during inflationary gaps, it incorporates the effect of higher tax revenues and reduced transfers. In contrast, the cyclically adjusted budget balance factors out the effects of the business cycle and assumes that real GDP is at potential output. Since, in the long run, real GDP tends to potential output, the cyclically adjusted budget balance is a better measure of the long-run sustainability of government policies.";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m68-cyu-2'] = "In recessions, real GDP falls. This implies that consumers’ incomes, consumer spending, and producers’ profits also fall. So in recessions, states’ tax revenue (which depends in large part on consumers’ incomes, consumer spending, and producers’ profits) falls. In order to balance the state budget, states have to cut spending or raise taxes. But that deepens the recession. Without a balanced-budget requirement, states could use expansionary fiscal policy during a recession to lessen the fall in real GDP.";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m68-cyu-3a'] = "A higher growth rate of real GDP implies that tax revenue will increase. If government spending remains constant and the government runs a budget surplus, the size of the public debt will be less than it would otherwise have been.";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m68-cyu-3b'] = "If retirees live longer, the average age of the population increases. As a result, the implicit liabilities of the government increase because spending on programs for older Americans, such as Social Security and Medicare, will rise.";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m68-cyu-3c'] = "A decrease in tax revenue without offsetting reductions in government spending will cause the public debt to increase.";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m68-cyu-3d'] = "Public debt will increase as a result of government borrowing to pay interest on its current public debt.";
xBookUtils.showAnswers['krugmanwellsmodulesecon3-s21m68-ct-1'] = "To stimulate the economy in the short run, the government can use fiscal policy to increase real GDP. This entails borrowing, which runs the risk of increasing the debt even more and, in extreme cases, of forcing the government to default on its debts. Even in less extreme cases, a large public debt is undesirable because government borrowing crowds out borrowing for private investment spending. The result is a decrease in investment spending and reduced long-run growth of the economy.";