- Suppose that the Mexican economy is described in the following graph:
- Economy is currently at point A; develop an appropriate fiscal policy to restore the natural rate of output. Outline the effect of government’s policy on AD and AS curve.
Homework Answers
Full employment output is at Yn and actual output Y1 is more than natural level. A Contractionary fiscal policy is needed to restore natural rate of output.
The government should decrease in government spending or increase taxes to induce decrease in consumption spending. This would decrease aggregate demand and shift AD curve leftwards. This will result in decrease in output back to Yn and decrease in price.
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Suppose that the Mexican economy is described in the following
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4. Suppose that the Mexican economy is described in the following graph: a. Economy is currently at point A; develop an appropriate fiscal policy to restore the natural rate of output. Outline the effect of government’s policy on AD and AS curve. (6 points). LRAS SRAS AD
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supply curve to shift leftward to SRAS, as shown in the graph at right. The economy is currently in short-run equilibrium at point E, and the reduction in supply is expected to be permanent. LRAS SRAS SRAS 1.) Using the line drawing and/or 3-point curved line drawing tool, show the adjustment to long-run equilibrium in this situation. Properly label your new curve(s). 2.) Using the point drawing tool, identify the new long-run equilibrium point and label the point 'E2 Carefully...
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would help to improve national economic conditions?
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identified in #14, what would happen to the federal government’s
budget deficit? Check one answer:
⧠ the deficit would grow larger (more negative)
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