Chapter 13: Q2. (page 500)
In the chapter, we talked about the problem of lags in discretionary fiscal policy. What does the Solana case tell us about this issue?
The Solana case tells that the government realizes the importance of renewable energy.
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Is the following statement true or false? Explain. “When the government expands, the private sector shrinks; when the government shrinks, the private sector expands.”
Explain how each of the following events would affect the public debt or implicit liabilities of the U.S. government, other things equal. Would the public debt or implicit liabilities be greater or smaller?
a. A higher growth rate of real GDP
b. Retirees live longer
c. A decrease in tax revenue
d. Government borrowing to pay interest on its current public debt
How did the political reaction to government funding for the Solana project differ from the reaction to more conventional government spending projects such as roads and schools? What does the case tell us about how to assess the value of a fiscal stimulus project?
In each of the following cases, determine whether the policy is an expansionary or contractionary fiscal policy.
a. Several military bases around the country, which together employ tens of thousands of people, are closed.
b. The number of weeks an unemployed person is eligible for unemployment benefits is increased.
c. The federal tax on gasoline is increased.
Is the depth of a recession a good or a bad time to undertake an energy project? Why or why not?
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