Homework Answers
a) In a recessionary gap
- unemployment is high for an extended period of time
- and equilibrium real GDP is below potential output.
b) inflationary gap
- the overall price level rises above the equilibrium level.
- Equilibrium real GDP is above potential output.
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Classify each statement as relating to either a recessionary gap or an inflationary gap. Recessionary gap...
Starting with the graphs below identify which is the inflationary gap and which is the recessionary...
Starting with the graphs below identify which is the inflationary gap and which is the recessionary gap. Then show and explain how the equilibrium will move back to the point where actual equal potential GDP without any government action.. As AS AD o Real GOP 1 Real GDP
QUESTION 7 When a recessionary gap occurs C a. real output exceeds the natural level of...
QUESTION 7 When a recessionary gap occurs C a. real output exceeds the natural level of output, and unemployment exceeds its natural rate b, real output exceeds the natural level, and unemployment is less than its natural rate C c.real output is less than the natural level of output, and unemployment exceeds it natural rate C d. real output is less than the natural level of output, and unemployment is less tha its natural rate QUESTION 8 What is a...
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?...
l 6. Monetary policy and the problem of inflationary and recessionary gaps On the following graph,...
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6. Monetary policy and the problem of inflationary and recessionary gaps On the following graph, the economy is producing at point A (grey star symbol), which corresponds to the intersection of the AD, and SRAS curves. The Federal Reserve ("the Fed") is considering whether to intervene in an effort to bring the economy back to its potential. ? LRAS SRAS, 165 160 No Intervention SRAS2 155 150 If Fed Intervenes PRICE LEVEL 145 140 AD2 135 ADA 130 125...
What fiscal policy would you recommend to eliminate the inflationary or recessionary gap in the following...
What fiscal policy would you recommend to eliminate the inflationary or recessionary gap in the following scenarios: Real GDP $44,500; potential GDP $46,200; mpe 0.2. O A. If the mpe is 0.2, the multiplier is 1.25. Because there is a recessionary gap of $1,700, the government should increase expenditures by $1,360 or decrease taxes by $6,800. O B. If the mpe is 0.2, the multiplier is 1.25. Because there is an inflatonary gap of $1,700, the government should decrease expenditures...
The following table shows the initial level of aggregate demand (AD) and te supply (AS) for the economy of Adanac.
The following table shows the initial level of aggregate demand (AD) and te supply (AS) for the economy of Adanac. The full-employment level of output is $500 billion. a. Draw the corresponding initial aggregate demand and aggregate supply curve (AD0 and AS0). b. What is the initial equilibrium price level and level of real GDP? c. At this initial equilibrium (AD0 and AS0), is Adanac experiencing either a recessionary or inflationary gap? If so, how large a gap exists? d. Suppose the aggregate demand in...
10. The output gap in this video would be the same thing as Optional Answers: 1....
10. The output gap in this video would be the same thing as Optional Answers: 1. inflationary or recessionary gap in the book 2. When firms are not using the correct resources to produce goods and services 3. a decrease in cyclical unemployment 4. a change in price level 11. A contraction in the economy is defined as Optional Answers: 1. a decrease in Real GDP 2. a decrease in unemployment
1. Suppose an economy is experiencing higher inflation rate as well as a recessionary gap. Using...
1. Suppose an economy is experiencing higher inflation rate as well as a recessionary gap. Using the policy reaction function, explain whether the Reserve bank will increase or decrease the interest rate? 2. Explain the effect of an increase in imports on the equilibrium output and inflation in the AD-AS model. Carefully distinguish between the short run and the long run. Would this affect the potential output? Why/Why not? 3. Suppose capital in Country A increases from 100 in 2017...
1. Suppose an economy is experiencing higher inflation rate as well as a recessionary gap. Using...
1. Suppose an economy is experiencing higher inflation rate as well as a recessionary gap. Using the policy reaction function, explain whether the Reserve bank will increase or decrease the interest rate? 2. Explain thee effect of an increase in imports on the equilibrium output and inflation in the AD-AS model. Carefully distinguish between the short run and the long run Would this affect the potential output? Why/Why not? 3. Suppose capital in Country A increases from 100 in 2017...
If the aggregate demand (AD) curve and the aggregate supply (AS)
If the aggregate demand (AD) curve and the aggregate supply (AS) curve intersects at the level of real GDP less than potential GDP, there is a recessionary gap an above full-employment equilibrium an inflationary gap a falling real GDP
Starting with the graphs below identify which is the inflationary gap and which is the recessionary gap. Then show and explain how the equilibrium will move back to the point where actual equal potential GDP without any government action.. As AS AD o Real GOP 1 Real GDP
QUESTION 7 When a recessionary gap occurs C a. real output exceeds the natural level of output, and unemployment exceeds its natural rate b, real output exceeds the natural level, and unemployment is less than its natural rate C c.real output is less than the natural level of output, and unemployment exceeds it natural rate C d. real output is less than the natural level of output, and unemployment is less tha its natural rate QUESTION 8 What is a...
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?...
l
6. Monetary policy and the problem of inflationary and recessionary gaps On the following graph, the economy is producing at point A (grey star symbol), which corresponds to the intersection of the AD, and SRAS curves. The Federal Reserve ("the Fed") is considering whether to intervene in an effort to bring the economy back to its potential. ? LRAS SRAS, 165 160 No Intervention SRAS2 155 150 If Fed Intervenes PRICE LEVEL 145 140 AD2 135 ADA 130 125...
What fiscal policy would you recommend to eliminate the inflationary or recessionary gap in the following scenarios: Real GDP $44,500; potential GDP $46,200; mpe 0.2. O A. If the mpe is 0.2, the multiplier is 1.25. Because there is a recessionary gap of $1,700, the government should increase expenditures by $1,360 or decrease taxes by $6,800. O B. If the mpe is 0.2, the multiplier is 1.25. Because there is an inflatonary gap of $1,700, the government should decrease expenditures...
10. The output gap in this video would be the same thing as Optional Answers: 1. inflationary or recessionary gap in the book 2. When firms are not using the correct resources to produce goods and services 3. a decrease in cyclical unemployment 4. a change in price level 11. A contraction in the economy is defined as Optional Answers: 1. a decrease in Real GDP 2. a decrease in unemployment
1. Suppose an economy is experiencing higher inflation rate as well as a recessionary gap. Using the policy reaction function, explain whether the Reserve bank will increase or decrease the interest rate? 2. Explain thee effect of an increase in imports on the equilibrium output and inflation in the AD-AS model. Carefully distinguish between the short run and the long run Would this affect the potential output? Why/Why not? 3. Suppose capital in Country A increases from 100 in 2017...
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