Homework Answers
- c. AD will shift to the right
- a. Price level equal to what workers and firms are expecting.
- d. The equilibrium interest rate
- c.controlling the money supply
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One part of fiscal policy consists of changing government spending, G. Government spending is part of...
On the graphs below, show the impact of an increase in government spending in the short...
On the graphs below, show the impact of an increase in
government spending in the short and long run. Assume that the
central bank does not change their inflation target. Consider both
the impacts on real GDP and also on the long run real rate of
interest (r*).
Real Interest Rate (r) AE Aggregate Expenditure Real Interest Rate (r) Monetary Policy Reaction Curve Long-Run Real Interest Rate (r) Target Inflation (1) Inflation (a) Long-Run Aggregate Supply Curve (LRAS) π↑ SRAS...
In the economy depicted in the graph, what happens if there is no intervention from policy...
In the economy depicted in the graph, what happens if there is no intervention from policy makers? Use the graph, where LRAS represents long-run aggregate supply, SRAS represents short-run aggregate supply, and AD represents aggregate demand, to demonstrate the answers by shifting the appropriate curve or curves. LRAS SRAS Prices will Aggregate price level (P) decrease. O increase. Output will decrease. Real output (Q) O increase.
Should the government use monetary and fiscal policy in an effort to stabilize the economy?
7. Use of discretionary policy to stabilize the economy Should the government use monetary and fiscal policy 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 combat 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 U.S. economy in April 2020. Suppose the government...
(1) Which of the following is not a tool of fiscal policy? Government spending Taxes Tax...
(1) Which of the following is not a tool of fiscal policy? Government spending Taxes Tax incentives Private investment (2) Which of the following statements helps to explain why the economy can be slow to recover from a recession? Workers are less motivated because of reduced expectations, which reduces total output. There is not as much money in circulation to fuel new investment. Wages do not fall quickly, which delays an adjustment to a higher output level....
Compare the effects of an expansionary fiscal policy action—an increase in government spending financed by government...
Compare the effects of an expansionary fiscal policy action—an increase in government spending financed by government bond sales to the public, for example—in the Keynesian and classical models. Include in your answer the effects of this policy shift on the level of real income, employment, the price level, and the rate of interest.
7. Effects of an active or passive policy
7. Effects of an active or passive policy The following graph shows the aggregate demand curve (AD), the short-run aggregate supply curve SRAS), and the long-run aggregate supply curve (LRAS) for a hypothetical economy. Suppose the economy is in short-run equilibrium. The _______ of $4 trillion drives unemployment _______ the unemployment rate consistent with full-employment output. Suppose public officials are concerned about the $4 trillion gap in the economy and the resulting lower-than-expected aggregate demand. The government has decided to follow an active...
Assignment Score: 13.3% Resources Ex Give Up? O Hint Check Answer Question 3 of 15 >...
Assignment Score: 13.3% Resources Ex Give Up? O Hint Check Answer Question 3 of 15 > Suppose that the economy of Monaco is represented by the aggregate demand (AD), short-run aggregate supply (SRAS), and long-run aggregate supply (LRAS) curves in the accompanying graph. LRAS SRAS a. Based on the graph, Monaco is O experiencing a deflationary gap. O experiencing an inflationary gap. O currently at long-run equilibrium. Aggregate price level b. Which of the following policies eliminate this phenomenon? 0...
As prices rise, a fixed money supply will be able to buy fewer goods and services....
As prices rise, a fixed money supply will be able to buy fewer goods and services. This real balance effect is due to a(n) reduction in the interest rate. Increase in aggregate demand Decline in the purchasing power of the fixed quantity of money. Increase in income. The international substitution effect exists because a Higher price level will reduce interest rates and stimulate foreign investment. Lower price level will make domestically produced goods less expensive relative to foreign goods. Higher...
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...
macroeconomics Fiscal Policy In Class Assignment You are hired by the president who believes that the...
macroeconomics
Fiscal Policy In Class Assignment You are hired by the president who believes that the economy is operating at a level of $3.2 trillion and that the potential output is $3 trillion. You are told that the national marginal propensity to consume (MPC) is 0.8. What type of government intervention might you recommend, if any? Discuss how this fiscal policy can be implemented through a change in government spending (how much should government spending change). Show your answer graphically...
On the graphs below, show the impact of an increase in
government spending in the short and long run. Assume that the
central bank does not change their inflation target. Consider both
the impacts on real GDP and also on the long run real rate of
interest (r*).
Real Interest Rate (r) AE Aggregate Expenditure Real Interest Rate (r) Monetary Policy Reaction Curve Long-Run Real Interest Rate (r) Target Inflation (1) Inflation (a) Long-Run Aggregate Supply Curve (LRAS) π↑ SRAS...
In the economy depicted in the graph, what happens if there is no intervention from policy makers? Use the graph, where LRAS represents long-run aggregate supply, SRAS represents short-run aggregate supply, and AD represents aggregate demand, to demonstrate the answers by shifting the appropriate curve or curves. LRAS SRAS Prices will Aggregate price level (P) decrease. O increase. Output will decrease. Real output (Q) O increase.
Assignment Score: 13.3% Resources Ex Give Up? O Hint Check Answer Question 3 of 15 > Suppose that the economy of Monaco is represented by the aggregate demand (AD), short-run aggregate supply (SRAS), and long-run aggregate supply (LRAS) curves in the accompanying graph. LRAS SRAS a. Based on the graph, Monaco is O experiencing a deflationary gap. O experiencing an inflationary gap. O currently at long-run equilibrium. Aggregate price level b. Which of the following policies eliminate this phenomenon? 0...
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...
macroeconomics
Fiscal Policy In Class Assignment You are hired by the president who believes that the economy is operating at a level of $3.2 trillion and that the potential output is $3 trillion. You are told that the national marginal propensity to consume (MPC) is 0.8. What type of government intervention might you recommend, if any? Discuss how this fiscal policy can be implemented through a change in government spending (how much should government spending change). Show your answer graphically...
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