Homework Answers
Ans: D) an inflationary gap and contractionary fiscal policy can close the gap
Explanation:
When the actual real GDP is greater than the potential or full employment level of real GDP , then there is an inflationary gap. In this situation , there is more money supply in the economy . As a result , the aggregate demand increases in the economy.
So the central government of the country will adopt a contractionary fiscal policy to close that gap. A contractionary fiscal policy consists of increase in tax rate and decrease in government spending.
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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...
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2. The diagram below shows the current macroeconomic situation for the economy of Ukraine (LRAS stands for Long-Run Aggregate Supply, SRAS stands for Short Run Aggregate Supply and AD for Aggregate Demand. You have been hired as an economic consultant to help the economy move to potential output, Y 0 LRAS SRAS AD Output, y a. Is Ukraine facing a recessionary or inflationary gap? Briefly explain b. Which type of fiscal policy expansionary or contractionary would move the economy of...
LRAS SRAS с Price level AD b Уf Real GDP Goods and services market Refer to Figure: Fiscal Policy 2. If an economy operates in the short run at point a, then if the government were to implement contractionary fiscal policy. then we should expect a/an decrease in SRAS, which moves the economy toward pointc. increase in AD, which moves the economy toward point decrease in AD, which moves the economy toward point b. ZIL P Yf Real GDP Goods...
Use the following to answer questions 6-7: Figure: Determining Fiscal Policy LRAS SRAS AD Aggregate Price Level (P) Aggregate Output (Q) 6. (Figure: Determining Fiscal Policy) Expansionary fiscal policies could: A) move the economy to full employment. B) move the economy away from full employment. C) lead to a lower price level. D) lead to a lower price level and lower unemployment. 7. (Figure: Determining Fiscal Policy) The best discretionary fiscal policy option is: A) expansionary fiscal policy that leads...
Price Level LRAS SRAS AD AD AD Yo Y Yo Yo If the economy in the graph shown is currently at point B, and the government enacts contractionary fiscal policy, in the short run the economy will most likely move to point Multiple Choice o o It is likely to be unaffected and stay at point B o o
P LRAS, SRAS, LRAS, SRAS, AD. AD P P. MAD, Y AD 0 Y, Y, Panel (a) Panel (b) LRAS, LRAS, SRA S SRAS, SRAS, SRAS, P AD AD, Y, Y. Panel (c) YY, Panel (d) Expansionary monetary policy would most likely be used to stabilize an economy in A. Panel (a) and Panel (b) B. Panel (c) and Panel (d) C. Panel (a) and Panel (c) D. Panel (b) and Panel (d)
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...
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