I am in desperate need of help with AP Macroeconomics!!!?

Question

I would really appreciate it if you coul help me answer a few questions that i didn't understand for my AP Macroeconomics project! Thanks in advance for helping!
With this information given: the US dollar appreciates; the GDP gap is 100; MPC is 0.75; reserve requirement is 0.15. I need to answer these questions given the info provided: Decide on a fiscal policy direction either contractionary or expansionary and explain why I am picking this particular type of fiscal policy.; I need to decide what tools to use and how they will impact the components of AS and AD.; I need to give at least four specific examples of fiscal policy recommendations with reasoning and graphs (i can figure out the graphs once i have examples) to support it (not just to raise taxes but what specific taxes to raise and why).; Identify the type and principle of taxation for each tax you chose.; Identify what is happening with automatic stabilizers/ non discretionary policy. how might LRAS and PPC be affected by

(continued from above)
...your policy?; and Identify the size of each multipier and how much you will need to change each tool by to fix your gap.

Thank you so much to the people you help me with this! This is one part of a very big project that is graded as 1/2 my final! You don't have to answer all but please answer as many as you can! Thank you again!

Answer 1

After a ton of reviewing from last years texts and notes this is what I have for u:

A GDP gap of 100 is a good thing since it means the country is producing 100% of its potential output. What that 100 should be is a 100% since the GDP gap is actual output over potential output. 100% would then mean the country is producing 100% of what it could.

MPC is the marginal propensity to consume which is related to the marginal propensity to expend WHICH IS THE SLOPE OF THE AGGREGATE DEMAND CURVE. Anyway, what this effectively means is that consumers are spending 75% of their income and with 25% being saved. Such a number can usually be found around holiday time (probably coinciding with the theme of the project) so consumers are re-injecting funds into the economy for producers to reinvest. This is a good thing too since it increases money volatility.

The reserve requirement of .15 means the fed requires banks to hold 15% of all of their accounts investment in reserve. Here, we see either a slow response to the times or an effort being made to insure credit lines. Reserve requirements usually do not run above 10% (which is high in itself), and when they're increased, they tighten credit lines and reduce consumption.

On the other hand, with the dollar appreciating, this means the fed is probably trying to maintain the momentum of a strong dollar. A strong currency makes selling goods overseas more difficult due to comparative advantage - our goods won't sell as cheaply as another country's will in a certain country's market. With tightened credit lines, the fed insures that spending is preserved in domestic markets without allowing investment in foreign countries to reach excessive proportions.

Currently, the economy is growing and on the verge of a booming expansion. Therefore, either an expansionary or contractionary policy work here so lets focus on how each part affects what happens.
/\Consumption, Investment, Government Expenditures, and Net-Exports/\

OK. Basically, an expansionary policy will induce greater spending and investing, but in years to come, firms will start cutting corners to the point that a recession will come. In other words, an expansionary policy is the commonsensical approach towards simple immediate growth, but can have volatile consequences. A contractionary policy on the other hand will slow down the economy and moderate its growth, making sure that nothing gets out of hand. Unfortunately, this has the potential of undercutting momentum which may be vital for certain industries, and can result in a depression if things go bad.
Expansionary policies are a risk, but allow for natural growth and economic progress. Contractionary policies are usually a safe bet, but if they fail, there's a notable chance that they'll fail hard.

Each of the policies you should implement should deal with one of the factors of total output (Consumption, Real Investment, Government Expenditure, Net Exports).

Grrr.... I keep looking into monetary policy since it's so much easier to implement. Alright gimme another sec.

Alright here are some automatic stabilizers for u to work with:
Spending cuts, tax raises, trade deficit payments, deficit spending.

I'm gunna give you the monetary examples anyway. Maybe u can use them in ways I'm not thinking of.

Fed rate increases, trading bonds, re-evaluating currency, subsidies and contracts, increased or decreased minting.

Remember to distinguish between pro-cyclical and counter-cyclical policies and make sure you note how fiscal polices are more like a sledgehammer than a scalpel in that yes they can be used for finetuning, but only by adjusting the technique in how it's wielded and held, not in the power exerted behind it.

Sorry this is confusing, but it's been a year and I'm just finishing up my winter break from college. Hope this helps and GL.