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| Suppose India pursued a Contractionary fiscal policy by raising taxes. a. Would this policy affect India’s monetary base? Be sure to define the monetary base in your explanation. b. Will this policy crowd out private spending? c. How will this policy affect India’s AS curve and/or AD curve? d. How, if at all, will the macroeconomic effects of this policy change the active and passive budget deficit/surplus of India? Explain. e. As a businessperson in India, suppose you anticipated the change in fiscal policy. Should you borrow before the policy was implemented or wait until after it changed? Consider only the direct effects on the real loan able funds market. f. Explain why the automatic stabilizers are important to countries like India. g. Explain the circumstances under which the Indian government might be forced or choose to default on its debts. |
