Sub: Economics Topic: Micro Economics
Question:
An explanation of the effect of President Bush’s policies on the federal
government budget expenditures in the case of a recessionary gap, using
multiplier effect.
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What has Pres. Bush proposed for government expenditures in the case of a recessionary gap?
What is the effect of his policies on the federal government budget? Please use the multiplier
effect in your analysis.
Solution:
In order to close the recessionary gap, President Bush has proposed for increased government
expenditure in the budget plan for the fiscal year 2008. According to the 2008 estimate,
receipts in current dollars are about $2662.5 billion while the government outlays are about
$2901.9 billion. As government outlays are more than the receipts, there will be deficit in the
budget. For the fiscal year 2008, the budget deficit is proposed to be -$239.4 billion.
When government increases its expenditure outlays, due to the multiplier effect, recessionary
gap can be closed. i.e any initial increase in government expenditure will lead to an increase in
income, output & spending by multiplier times. Thus, in this case, government expenditure
multiplier plays a crucial role in closing the recessionary gap.
** End of the Solution **
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Sub: Economics Topic: Micro Economics
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*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for submitting the same in
lieu of your academic submissions for grades.