question archive Assignment 1: Economic Policies and Practices The policies of the federal government influence the outcomes of the various activities in that economy
Assignment 1: Economic Policies and Practices The policies of the federal government influence the outcomes of the various activities in that economy
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Assignment 1: Economic Policies and Practices
The policies of the federal government influence the outcomes of the various activities in that economy. When government policies change or unplanned events occur, the resulting economic events or activity will usually change. Listed below are several policies or events that affect the performance of the economy:
1.The federal government employs a budget plan over several fiscal years that results in significant increases in the national debt, with no relief or plans to deal with the problem.
2.The federal government enacts new tariffs and quotas on all imports.
3.The general public loses confidence in their leadership, in terms of their ability to manage the economy, especially in the area of job creation.
4.The federal government, in an effort to stimulate the economy, decreases taxes on all individuals except those earning over $250,000 per year.
5.The level of investment decreases because of a lack of confidence in the economy.
6.Interest rates are kept artificially low by the Federal Reserve for several years.
Required:
For each of the items above, describe what would be the likely outcomes in the economy. Use the appropriate tools of analysis, such as aggregate demand and aggregate supply where appropriate, to justify and explain your answer.
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1. Here it can be seen, that the economy takes the self-correction. The demand is created by the supply itself like whatever the output labor produces, is consumed by it only where the consumption will be increased in the long run.
2. New tariffs will result in an increase in the prices of imports and this will restrict the import trade in the country. This will cause to protect and grow the domestic industries in the country.
3. At the time of crisis, people will lose confidence in getting jobs, it is the duty of government at such a crisis to create and promote employment opportunities which means the loss of jobs can be reduced by the government.
4. Keynesian's optimism and pessimism theory can be used in the situation. The government will reduce the rates of taxes on the people and families with lower income which will affect the aggregate demand-supply of the economy and this will also increase employment and inflation to some good level.
5. When the investors will decrease their investments then the economy will be entering into situations that are pessimistic. So, all the business will withdraw their investments, and to attract them again, the government will increase the rate of interest again.
6. If interest rates are kept lowered, then more people will be able to take loans and that too easily.
