Questions: 1. Assume that the country of Corruptville is run by President Iduncare who is the leader to the political party 'Severing Corruptville's Allegiance Members' (SCAM for short). Currently, Corruptville is holding a presidential election. President Iduncare is worried he will not enough votes for SCAM to win power in Corruptville. As such, he decides to win the people of Corruptville's votes by cutting taxes. Using the Keynesian model, illustrate and explain the likely impact of the tax cut on the economy. Based on the information provided in this question what is one limitation of fiscal policy?
2. How are federal budget surpluses and deficits affected by the business cycle?
3. Why is the multiplier effect of an increase in transfer payments less than the multiplier effect of an increase in government spending by an equal amount?
4. Do you think that households make a distinction between spending for current expenses and spending for capital expenses? For example, compare borrowing $10,000 to take a month's holiday to Hawaii to borrowing $250,000 to buy an apart