An inflationary gap caused by a demand shock can be addressed by _____ to _____. A....
An inflationary gap caused by a demand shock can be addressed by _____ to _____.
| A. |
lowering government spending; lower the aggregate price level |
|
| B. |
raising taxes; lower the unemployment rate |
|
| C. |
raising government spending; lower the unemployment rate |
|
| D. |
lowering taxes; lower the aggregate price level |
Homework Answers
Answer
option A
|
lowering government spending; lower the aggregate price level |
the inflationary shock can be covered by the contractionary policy where the government uses fiscal policy of decrease in government spending or increase in taxes so the government can control the price level.
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An inflationary gap caused by a demand shock can be addressed by
_____ to _____.
A....
Suppose the economy has a recessionary gap of $1,000B caused by a demand shock with unemployment...
Suppose the economy has a recessionary gap of $1,000B caused by a demand shock with unemployment is rising. You also know that the marginal propensity to consume is 0.75. Using the aggregate demand-aggregate supply model: Draw a picture depicting the situation. (10 points) Compute the multiplier. (10 points) (Show your work) Would you use contractionary or expansionary fiscal policy? How much would you need to change government spending? (10 points) (Show your work)
6. (Problem 6) An economy is facing the inflationary gap shown in the accompanying diagram. Aggregate...
6. (Problem 6) An economy is facing the inflationary gap shown in the accompanying diagram. Aggregate price level LRAS SRAS Real GDP Potential —YpY output To eliminate the gap, should the central bank use expansionary or contractionary monetary policy? How will the interest rate, investment spending, consumer spending, real GDP, and the aggregate price level change as monetary policy closes the inflationary gap? The central bank can use contractionary monetary policy. The interest rate will rise, which would encourage a...
Inflationary pressure in the AS-AD model can be shown as a leftward shift of the AD...
Inflationary pressure in the AS-AD model can be shown as a leftward shift of the AD curve when the economy is already producing at its potential GDP. supply shock that shifts the AS to the right. rightward shift of the AD curve when the economy is already producing at its potential GDP. Typically, if consumer and business confidence is high then ________ and if consumer and business confidence is low then ________. AD shifts to the left; AD shifts to...
1. Inflationary pressure in the AS-AD model can be shown as a a) supply shock that...
1. Inflationary pressure in the AS-AD model can be shown as
a
a) supply shock that shifts the AD to the left.
b) rise in input prices affecting most firms across the economy
shifting AS curve to the right.
c) rise in input prices affecting most firms across the economy
shifting AS curve to the left.
2. Which of the following would cause a positive demand shock
(shift to the right) in aggregate demand?
a) decreased availability of capital stock....
6. Demonstrate the decrease in wealth using the closed AD-AS model, ceteris paribus, in both the...
6. Demonstrate the decrease in wealth using the closed AD-AS model, ceteris paribus, in both the short-run and long-run. Assumptions: (1) start in long-run equilibrium; (2) prices are sticky; (3) nominal wages are fixed in the short-run. [Note: this is the self-correcting version.] [Sub-questions 6-10 are connected.] In the short-run, _______ shifts _______. A. the aggregate demand curve; leftward B. the aggregate demand curve; rightward C. the short-run aggregate supply curve; leftward D. the short-run aggregate supply curve; rightward E....
4. 25 points a. How can the Federal Government help to reduce or close the inflationary...
4. 25 points a. How can the Federal Government help to reduce or close the inflationary gap moving the economy back toward full employment using demand side fiscal policy. > Carefully explain your policy measure. > Account for the role of the spending multiplier in your answer. b. Explain carefully the potential impact, if applicable, on i. Aggregate Demand Aggregate Supply The Price Level The Level of real GDP The Interest Rates, The Budget Deficit, and The Trade Deficit. i....
19. Which of the following explains why the government should not increase spending by the entire...
19. Which of the following explains why the government should not increase spending by the entire amount of the AE shortfall to move the economy to full employment? A. Price level changes will make up for the difference between the fiscal stimulus and the AE shortfall. B. The multiplier process will contribute to an additional increase in aggregate demand that will cause an inflationary gap. C. The government can increase taxes to create an additional increase in aggregate expenditure. D....
1. Suppose in a simple closed economy with MPC = 0.75, the planned investment spending nas...
1. Suppose in a simple closed economy with MPC = 0.75, the planned investment spending nas suddenly fallen, reducing AD and output to a level that below the natural level of output by 100 Million. Assume that the real interest rate is constant so that there is no crowding out of (gross) investment. (a) If the government decided to try to get the output back to the natural level of output using only a change in government spending (AG), by...
An increase in the price level will A) shift the aggregate demand curve to the left.
7) An increase in the price level will A) shift the aggregate demand curve to the left. B) shift the aggregate demand curve to the right. C) move the economy up along the aggregate demand curve. D) move the economy down along the aggregate demand curve. 8) Expansionary monetary policy involves A) reducing money supply and lowering taxes B) increasing money supply to decrease interest rate C) increasing government spending and cutting money supply D) increasing the interest rate and increasing taxes 9) Long-run macroeconomic equilibrium occurs when A) aggregate demand...
(10 points) If the government decided today that aggregate demand was excessive and causing an inflationary gap, ho...
(10 points) If the government decided today that aggregate demand was excessive and causing an inflationary gap, how could the government use the tools of fiscal policy to correct this problem? Explain what could be done using each of the three tools. Explain the impact on prices in comparison to the self-correcting mechanism discussed in Chapter 10. (All three methods are the same In this respect.) Think in terms of aggregate supply and demand curves with aggregate supply unaffected by...
6. (Problem 6) An economy is facing the inflationary gap shown in the accompanying diagram. Aggregate price level LRAS SRAS Real GDP Potential —YpY output To eliminate the gap, should the central bank use expansionary or contractionary monetary policy? How will the interest rate, investment spending, consumer spending, real GDP, and the aggregate price level change as monetary policy closes the inflationary gap? The central bank can use contractionary monetary policy. The interest rate will rise, which would encourage a...
1. Inflationary pressure in the AS-AD model can be shown as
a
a) supply shock that shifts the AD to the left.
b) rise in input prices affecting most firms across the economy
shifting AS curve to the right.
c) rise in input prices affecting most firms across the economy
shifting AS curve to the left.
2. Which of the following would cause a positive demand shock
(shift to the right) in aggregate demand?
a) decreased availability of capital stock....
4. 25 points a. How can the Federal Government help to reduce or close the inflationary gap moving the economy back toward full employment using demand side fiscal policy. > Carefully explain your policy measure. > Account for the role of the spending multiplier in your answer. b. Explain carefully the potential impact, if applicable, on i. Aggregate Demand Aggregate Supply The Price Level The Level of real GDP The Interest Rates, The Budget Deficit, and The Trade Deficit. i....
19. Which of the following explains why the government should not increase spending by the entire amount of the AE shortfall to move the economy to full employment? A. Price level changes will make up for the difference between the fiscal stimulus and the AE shortfall. B. The multiplier process will contribute to an additional increase in aggregate demand that will cause an inflationary gap. C. The government can increase taxes to create an additional increase in aggregate expenditure. D....
1. Suppose in a simple closed economy with MPC = 0.75, the planned investment spending nas suddenly fallen, reducing AD and output to a level that below the natural level of output by 100 Million. Assume that the real interest rate is constant so that there is no crowding out of (gross) investment. (a) If the government decided to try to get the output back to the natural level of output using only a change in government spending (AG), by...
(10 points) If the government decided today that aggregate demand was excessive and causing an inflationary gap, how could the government use the tools of fiscal policy to correct this problem? Explain what could be done using each of the three tools. Explain the impact on prices in comparison to the self-correcting mechanism discussed in Chapter 10. (All three methods are the same In this respect.) Think in terms of aggregate supply and demand curves with aggregate supply unaffected by...
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