Assignment 3 Due Sunday at 11:59 at the end of Module7 50 Points This assignment
ID: 1164878 • Letter: A
Question
Assignment 3 Due Sunday at 11:59 at the end of Module7 50 Points This assignment covers material from Modules 5, 6 and 7 Please answer this on a Word document or a PDF and upload into the Module 7 Assignment Portal Include a heading, but outside research and references are not required. 1. Assume that workers became fearful of job security and the aggregate demand curve shifted to the left. a. Explain how Keynesian economists would address this situation. b. Identify the 2 major tools of discretionary fiscal policy and explain how they could be used to correct this situation 2. Assume that the economy reaches natural unemployment, but demand keeps increasing and we experience inflation in the 7%-10% annual range. Explain, how neo classical economists would address this situation. Using the 3 tools of monetary fiscal policy, explain how each of these tools could be used to correct this situation. a. b. Grading Rubric: Each question worth 11 Points Accuracy of answer 5Points each Quality of analysis: 6 Points each Overall 6 points on entire assignment for grammar, coherence, lack of typosExplanation / Answer
1. a) Keynesian economics believe in demand side economics and thus they envisages a great role of government sector. Kenyesian economist would address this problem by increasing the government expenditure. In this case increased government spending would be in form of unemployment insurance. Unemployment insurance would prevent the aggregate demand by providing assistance in terms of assured income to people. Since people have assured income then aggregate demand won't fall.
B) The discretionary fiscal policy tools are
* Unemployment insurance - Unemployment insurance would act as automatic stabilizer . Unemployment insurance mean assured l income to people which they will spend and hence aggregate demand won't fall.
* Tax rate - If government reduce corporate tax rate and income tax rate then it would mean more disposable income for consumers to spend and hence it would aggregate demand won't fall .
** We are supposed to do one big question at a time. Please post question again for more answers.