How does the ratchet effect affect anti inflationary policy?
How does the ratchet effect affect anti inflationary policy?
How does the “ratchet effect” affect anti-inflationary fiscal policy? The ratchet effect implies that prices are rigid downward. Explain how built-in (or automatic) stabilizers work. When GDP is rising so are tax collections both income taxes and sales taxes.
What are governments fiscal policy options for ending severe demand-pull inflation?
Fiscal policy options the government can enact to end severe demand-pull inflation include decreasing government spending, increasing taxes, or a combination of both. Increasing taxes is best for preserving government size while cutting government spending make the government weaker.
What type of tax system would have the most built-in stability quizlet?
What type of tax system would have the most built-in stability? A progressive tax because it increases at an increasing rate as incomes rise, thus having more of a dampening effect on rising (or falling) incomes.
Why such an amendment if strictly enforced would force the government to enact a contractionary fiscal policy whenever the economy experienced a severe recession?
Such an amendment, if strictly enforced, would force the government to enact a contractionary fiscal policy whenever the economy experienced a severe recession. This is because when the economy enters a recession, net tax revenue falls and transfer payments rise.
Which of the following best describes the ratchet effect?
Which of the following best describes the ratchet effect? Increases in AD expand output beyond full-employment and push prices up, but declines in AD do not seem to push prices down.
Which type of fiscal policy is used during the demand-pull inflation?
To counter demand pull inflation, governments, and central banks would have to implement a tight monetary and fiscal policy. Examples include increasing the interest rate or lowering government spending or raising taxes. An increase in the interest rate would make consumers spend less on durable goods and housing.
Which of the following would help a government reduce an inflationary output gap?
Policies that can reduce an inflationary gap include reductions in government spending, tax increases, bond and securities issues, interest rate increases, and transfer payment reductions.
What actions can the government take if it has an expansionary fiscal policy how do these actions help to increase employment?
Expansionary fiscal policy tools include increasing government spending, decreasing taxes, or increasing government transfers. Doing any of these things will increase aggregate demand, leading to a higher output, higher employment, and a higher price level.
When there is a ratchet effect what happens to the price level?
The ratchet effect may deter the price level from falling below P0, but it may slow the inflation rate to below 10 percent.
