Homework Answers
a. Ukraine is facing recessionary gap since it actual output is much less than potential output.
b. An expansionary fiscal policy that aims to increase aggregate demand will move the economy to potential output. Increase in public spending or decrease in taxes will lead to increase in consumer income and hence aggregate demand increases. AD curve shifts to right and intersect long run and short run AS curve at same point on potential output.
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2. The diagram below shows the current macroeconomic situation for the economy of Ukraine (LRAS stands...
Por CPI LRAS, SRAS, AD AD, AD Y, Үр Ү, Yor Real GDP Suppose the economy...
Por CPI LRAS, SRAS, AD AD, AD Y, Үр Ү, Yor Real GDP Suppose the economy is producing the output level Yp, and a positive demand shock shifts the AD, curve to AD2. The economy now has __ A. a recessionary gap and expansionary fiscal policy can close the gap. B. an inflationary gap and expansionary fiscal policy can close the gap. C. a recessionary gap and contractionary fiscal policy can close the gap. D. an inflationary gap and contractionary...
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?...
1. When actual output (where AD and SRAS intersect) is less than LRAS, this is a(n)...
1. When actual output (where AD and SRAS intersect) is less than LRAS, this is a(n) _____ gap. (inflationary or recessionary?) 2. A inflationary gap is when actual output (where AD and SRAS intersect) is _____ less than LRAS. (greater than, or less than?) 3. A fall in government purchases will cause _____ (aggregate demand/short run aggregate supply) to _____ (shift in/shift out).
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...
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...
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...
()-run equilibrium occurs at the intersection of the aggregate demand curve, AD, and the short-run aggregate...
()-run equilibrium occurs at the intersection of the aggregate demand curve, AD, and the short-run aggregate supply curve, SRAS.() ▼ Long Short -run equilibrium occurs at the intersection of AD and the long-run aggregate supply curve, LRAS. Any unanticipated shifts in aggregate demand or supply are called aggregate demand or aggregate supply() ▼ shocks externalities . When aggregate demand decreases while aggregate supply is stable,() ▼ a recessionary an inflationary gap can occur, defined as the difference between how much...
Homework 3(1) (1) ICompatibility Mode] Mailings Reyiew View 2. Fiscal policy, Current macroeconomic situation in county...
Homework 3(1) (1) ICompatibility Mode] Mailings Reyiew View 2. Fiscal policy, Current macroeconomic situation in county X is shown below. Help this economy move to full employment at 10 trillion real GDP by answering the following questions re m y 130 120 110 a. Is country X facing a) Recessionary, or b) Inflationary gap? b. Country ? should use, a) expansionary, or b) contractionary Fiscal Policy. (1 polnt) point) (2 points) c. How would such policy work? d. Using the...
Figure: Effects of Contractionary Fiscal Policies LRAS SRAS AD Aggregate Output (Q) ot t Expansionary fiscal...
Figure: Effects of Contractionary Fiscal Policies LRAS SRAS AD Aggregate Output (Q) ot t Expansionary fiscal policy should be used to ensure a higher price level Contractionary fiscal policies should be used to reduce inflation Contractionary fiscal policy should be used to ensure a higher price level Expansionary fiscal policy should be used to increase aggregate demand Which of the following statements is true regarding the diagram above
Price Level 110 112 YearPotential GDP Real GDP 2015$12.2 rilion$12.0 trillion 2016 12.6 trillion 12.4 trillion...
Price Level 110 112 YearPotential GDP Real GDP 2015$12.2 rilion$12.0 trillion 2016 12.6 trillion 12.4 trillion Graph the AD, SRAS, and LRAS for 2015 and 2016 on the axes below. You can create your own scale on the axes. (Hint: AD and SRAS will intersect at the Real GDP and price level given) a. b. In 2015, does the economy have a recessionary gap (below potential GDP), inflationary gap (above potential GDP), or no gap (at potential GDP)? Why? In...
Por CPI LRAS, SRAS, AD AD, AD Y, Үр Ү, Yor Real GDP Suppose the economy is producing the output level Yp, and a positive demand shock shifts the AD, curve to AD2. The economy now has __ A. a recessionary gap and expansionary fiscal policy can close the gap. B. an inflationary gap and expansionary fiscal policy can close the gap. C. a recessionary gap and contractionary fiscal policy can close the gap. D. an inflationary gap and contractionary...
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?...
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...
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...
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...
Homework 3(1) (1) ICompatibility Mode] Mailings Reyiew View 2. Fiscal policy, Current macroeconomic situation in county X is shown below. Help this economy move to full employment at 10 trillion real GDP by answering the following questions re m y 130 120 110 a. Is country X facing a) Recessionary, or b) Inflationary gap? b. Country ? should use, a) expansionary, or b) contractionary Fiscal Policy. (1 polnt) point) (2 points) c. How would such policy work? d. Using the...
Figure: Effects of Contractionary Fiscal Policies LRAS SRAS AD Aggregate Output (Q) ot t Expansionary fiscal policy should be used to ensure a higher price level Contractionary fiscal policies should be used to reduce inflation Contractionary fiscal policy should be used to ensure a higher price level Expansionary fiscal policy should be used to increase aggregate demand Which of the following statements is true regarding the diagram above
Price Level 110 112 YearPotential GDP Real GDP 2015$12.2 rilion$12.0 trillion 2016 12.6 trillion 12.4 trillion Graph the AD, SRAS, and LRAS for 2015 and 2016 on the axes below. You can create your own scale on the axes. (Hint: AD and SRAS will intersect at the Real GDP and price level given) a. b. In 2015, does the economy have a recessionary gap (below potential GDP), inflationary gap (above potential GDP), or no gap (at potential GDP)? Why? In...
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