I could use help with a few questions from my macroeconomics study guide. Anyone available to help?

Here are a few of the question I need help with, thanks in advance!

Does the Phillips Curve hold true for the current economy? What does this tell you about the current economy, workers' pay and mobility, or other items?

Do deficits lead to inflation? Why or why not? Relate this to the current budget deficit and current inflation rates.

Suppose gasoline prices increased sharply and consumers became fearful of owning too many expensive cars. As a consequence they cut back on purchases of new cas and instead increased savings. How would this shift the aggregate demand curve? According to the short-run aggregate supply curve, what would happen to prices and output in the short run?

Is a budget deficit a tax on future generations

This post was edited by PAYT0N on May 8 2015 07:32am

Can't edit for some reason.

So these are the last ones I am having a hard time figuring out.

What type of stimulus does more to help the economy, a one-time cash stimulus or ongoing tax relief? Why?

Do deficits lead to inflation? Why or why not? Relate this to the current budget deficit and current inflation rates.

Suppose gasoline prices increased sharply and consumers became fearful of owning too many expensive cars. As a consequence they cut back on purchases of new cas and instead increased savings. How would this shift the aggregate demand curve? According to the short-run aggregate supply curve, what would happen to prices and output in the short run?

There is evidence for the Phillips Curve on old data, but the shock in the 1970's (mainly oil) contradicted the phillips curve. There was rapid inflation in addition to high unemployment, when it should have been the opposite for unemployment.

Deficits lead to inflation if you borrow or print money, which in turn increases the money supply within the economy. Remember that inflation is defined as an increase in the money of supply within an economy.

Aggregate demand curve would decrease by shifting downwards (to the left) as within your disposable income, you can either consume or save. If you reduce your consumption, then by default you will save the rest. Prices of new cars would decrease as a result of decreasing demand. As for output I'm not sure, because output is sticky, meaning that it doesn't react to short term changes in the market very quickly. So output may remain constant (but with supply exceeding demand resulting in unsold cars), or output may decrease in line with decreased demand. Depends on your lecturer...maybe mention both.

A budget deficit is certainly a tax on future generations, if not directly, then in the form of (indirect) inflationary tax. Refer back to my answer to your 2nd question. You can see that deficits lead to inflation, which reduces the purchasing power of consumers. Whilst you may not be taxed more directly, your future purchasing power may be reduced in the form of the goods you can buy. Of course, direct tax may be higher for future generations too, in order to pay off the national debt.

This post was edited by dro94 on May 8 2015 11:37am

You are awesome thanks.

Last one

What type of stimulus does more to help the economy, a one-time cash stimulus or ongoing tax relief? Why?

No problem, you can pm with any further questions as long as they don't take too much time, just I'm fairly busy with my dissertation and revising for exams (also Economics student )

First define what you mean by 'help'. Usually a stimulus is to increase consumer demand, after a recession for example. The idea is that increasing money supply would in turn increase demand, as we know that Money supply = Money demand in equilibrium. I would say the answer depends on the extent of tax relief. Taxes are inefficient in nature - decreasing taxes makes markets more efficient and benefits both consumers and producers.

I think the overall consensus of economists is that reducing taxes is most optimal, and doesn't cause a lot of inflation like increasing the money supply does. Governments usually choose the quantitative easing approach as it means they won't have to reduce the tax revenue they receive.

One time cash stimulus because an ongoing tax relief will make future taxes higher in order to pay government debt. Also people suspect a higher level of tax in the future so spending does not increase as much.