Homework Answers
The recessionary gap occurs when the real GDP falls below the full employment level of output. To close the recessionary gap an expansionary fiscal policy is used. An expansionary fiscal policy stimulates the aggregate demand and shifts the aggregate demand curve to the right.
The new aggregate demand line is AD1. The expansionary fiscal policy will increase the aggregate demand and there by shifts the aggregate demand curve to the right. Then the recessionary gap is closed.
An expansionary monetary policy will also close this gap, the increase in the money supply would increase the aggregate demand and there by shifts the aggregate demand curve to the right.
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2. (12 marks) Use a AD/AS diagram to illustrate the use of expansionary monetary policy to...
2. (12 marks) Use a AD/AS diagram to illustrate the use of expansionary monetary policy to...
2. (12 marks) Use a AD/AS diagram to illustrate the use of expansionary monetary policy to close an expansionary gap. a. Label the axes. b. Label the lines. And show the expansionary gap with the LRAS c. Show the new AD line after the expansionary monetary policy is applied. d. Briefly explain what your diagram shows. e. Explain what monetary policies impact. LRAS SRAS Poh t AD2 recessiona
2. The diagram below shows the current macroeconomic situation for the economy of Ukraine (LRAS stands...
2. The diagram below shows the current macroeconomic situation for the economy of Ukraine (LRAS stands for Long-Run Aggregate Supply, SRAS stands for Short Run Aggregate Supply and AD for Aggregate Demand. You have been hired as an economic consultant to help the economy move to potential output, Y 0 LRAS SRAS AD Output, y a. Is Ukraine facing a recessionary or inflationary gap? Briefly explain b. Which type of fiscal policy expansionary or contractionary would move the economy of...
2) In 2001, the Fed pursued a very expansionary monetary policy. At the sametime, President George...
2) In 2001, the Fed pursued a very expansionary monetary policy. At the sametime, President George W. Bush pushed through legislation that lowered income taxes. a. Use the IS-LM diagram to describe the situation prior to any such policy changes labeling the economy initially at the equilibrium at point A. b. Now show the combined effect of the two policies. Label the new equilibrium point B. Explain what you have done - which curve shifts which way and why! c....
2001, the Fed pursued an expansionary monetary policy and reduced interest rates. At the same time, President Georg...
2001, the Fed pursued an expansionary monetary policy and reduced interest rates. At the same time, President George W. Bush pushed through legislation that lowered Income taxes. "he accompanying IS-LM diagram describes the situation prior to any such policy changes. Initially the economy is at equilibrium point A. .) Using the line drawing tool, draw a new LM curve to illustrate the effect of an expansionary monetary policy. Property abel your curve. 2.) Using the 3-point curve drawing tool, draw...
a. Define a recessionary gap. Draw the LRAS curve to show a recessionary (contractionary gap) gap....
a. Define a recessionary gap. Draw the LRAS curve to show a recessionary (contractionary gap) gap. b. Show the condition of the labor (and other resource) markets. Draw the labor market diagram next to the AS/AD diagram. c. Show and explain how a recessionary (contractionary) gap is closed using a nonintervention policy. SRAS, Price Level Ø 6 10 7 8 9 Real GDP d. e. Draw the LRAS curve to show an inflationary (expansionary) gap. What is a stabilization policy?...
Figure: North-West Economy a) Is North-West facing a recessionary or expansionary gap? Justify your answer. b)...
Figure:
North-West Economy
a) Is North-West facing a recessionary or expansionary
gap? Justify your answer.
b) If you are the chair of the Central Bank of this
country, which type of monetary policy, expansionary or
contractionary, would you adapt to fix the economy of North-West?
Give examples, explain and be detailed.
c) If you are the President of this country, how would
you use Fiscal policy to fix the economy of North-West? Give
examples, explain and be detailed.
North-West economy...
1. List and explain the 3 tools of Federal Reserve Monetary Policy. 2. Explain how the...
1. List and explain the 3 tools of Federal Reserve Monetary Policy. 2. Explain how the Federal Reserve would use expansionary monetary policy to close a recessionary gap. Explain how the money supply, interest rate, investment spending, consumer spending, aggregate demand, real GDP, unemployment, and price level is affected. Illustrate this graphically below
Should policymakers use monetary policy, fiscal policy, or both in an effort to stabilize the economy?
Use of discretionary policy to stabilize the economy Should policymakers use monetary policy, fiscal policy, or both in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy and the pros and cons of using these tools to lessen economic fluctuations. The following graph shows a hypothetical aggregate demand curve (AD), short-run aggregate supply curve (AS), and long-run aggregate supply curve (LRAS) For the economy in May 2020. According to the...
1. Using the monetary policy tool the Fed employs most often, the Fed closes an inflationary...
1. Using the monetary policy tool the Fed employs most often, the Fed closes an inflationary gap. Describe the steps the economy goes through to move to the new equilibrium output and price level. Use graphs with your answer and be sure to label everything completely. 2.Explain and show on a graph the short-run and long-run equilibrium changes in the AD/AS model from expansionary monetary policy. How does this support an anti-monetary policy stance? 3. What is the equation of...
Use the following to answer questions 6-7: Figure: Determining Fiscal Policy LRAS SRAS AD Aggregate Price Level (P) Agg...
Use the following to answer questions 6-7: Figure: Determining Fiscal Policy LRAS SRAS AD Aggregate Price Level (P) Aggregate Output (Q) 6. (Figure: Determining Fiscal Policy) Expansionary fiscal policies could: A) move the economy to full employment. B) move the economy away from full employment. C) lead to a lower price level. D) lead to a lower price level and lower unemployment. 7. (Figure: Determining Fiscal Policy) The best discretionary fiscal policy option is: A) expansionary fiscal policy that leads...
2. (12 marks) Use a AD/AS diagram to illustrate the use of expansionary monetary policy to close an expansionary gap. a. Label the axes. b. Label the lines. And show the expansionary gap with the LRAS c. Show the new AD line after the expansionary monetary policy is applied. d. Briefly explain what your diagram shows. e. Explain what monetary policies impact. LRAS SRAS Poh t AD2 recessiona
2. The diagram below shows the current macroeconomic situation for the economy of Ukraine (LRAS stands for Long-Run Aggregate Supply, SRAS stands for Short Run Aggregate Supply and AD for Aggregate Demand. You have been hired as an economic consultant to help the economy move to potential output, Y 0 LRAS SRAS AD Output, y a. Is Ukraine facing a recessionary or inflationary gap? Briefly explain b. Which type of fiscal policy expansionary or contractionary would move the economy of...
2) In 2001, the Fed pursued a very expansionary monetary policy. At the sametime, President George W. Bush pushed through legislation that lowered income taxes. a. Use the IS-LM diagram to describe the situation prior to any such policy changes labeling the economy initially at the equilibrium at point A. b. Now show the combined effect of the two policies. Label the new equilibrium point B. Explain what you have done - which curve shifts which way and why! c....
2001, the Fed pursued an expansionary monetary policy and reduced interest rates. At the same time, President George W. Bush pushed through legislation that lowered Income taxes. "he accompanying IS-LM diagram describes the situation prior to any such policy changes. Initially the economy is at equilibrium point A. .) Using the line drawing tool, draw a new LM curve to illustrate the effect of an expansionary monetary policy. Property abel your curve. 2.) Using the 3-point curve drawing tool, draw...
a. Define a recessionary gap. Draw the LRAS curve to show a recessionary (contractionary gap) gap. b. Show the condition of the labor (and other resource) markets. Draw the labor market diagram next to the AS/AD diagram. c. Show and explain how a recessionary (contractionary) gap is closed using a nonintervention policy. SRAS, Price Level Ø 6 10 7 8 9 Real GDP d. e. Draw the LRAS curve to show an inflationary (expansionary) gap. What is a stabilization policy?...
Figure:
North-West Economy
a) Is North-West facing a recessionary or expansionary
gap? Justify your answer.
b) If you are the chair of the Central Bank of this
country, which type of monetary policy, expansionary or
contractionary, would you adapt to fix the economy of North-West?
Give examples, explain and be detailed.
c) If you are the President of this country, how would
you use Fiscal policy to fix the economy of North-West? Give
examples, explain and be detailed.
North-West economy...
1. List and explain the 3 tools of Federal Reserve Monetary Policy. 2. Explain how the Federal Reserve would use expansionary monetary policy to close a recessionary gap. Explain how the money supply, interest rate, investment spending, consumer spending, aggregate demand, real GDP, unemployment, and price level is affected. Illustrate this graphically below
Use of discretionary policy to stabilize the economy Should policymakers use monetary policy, fiscal policy, or both in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy and the pros and cons of using these tools to lessen economic fluctuations. The following graph shows a hypothetical aggregate demand curve (AD), short-run aggregate supply curve (AS), and long-run aggregate supply curve (LRAS) For the economy in May 2020. According to the...
Use the following to answer questions 6-7: Figure: Determining Fiscal Policy LRAS SRAS AD Aggregate Price Level (P) Aggregate Output (Q) 6. (Figure: Determining Fiscal Policy) Expansionary fiscal policies could: A) move the economy to full employment. B) move the economy away from full employment. C) lead to a lower price level. D) lead to a lower price level and lower unemployment. 7. (Figure: Determining Fiscal Policy) The best discretionary fiscal policy option is: A) expansionary fiscal policy that leads...
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