Question

LAS AO Price Pure SAS level v Real GOP Refer to figure 3 above 2) The economy Is In a short run equilibrium at 01, which is to the left of OF {full employment level of real output). What is the mostly like concern of policy makers A. Rising price levels B. An excess of externalities in the market C. High levels of unemployment D. Crowding our as result of high budget defecits E. An overallocation of scarce resources creating inefficiencies Refer to figure 3 above What should policy makers pursue to alleviate the problem- A Pursue contractionary fiscal policy B Pursue contractionary monetary polley The government should raise taxes D. The Fed should sell bonds E The Fed should buy bords 1) When the government towers the tax rates for personal income taxes, the result is most likeiy to be A) Consumption Investment ADU B) Bank Deposits. MoneySupply AD o consumption Investment M. AD ? Real GDP 1 D) interest rates y consumption AD

Answer 1

Ans 14. (C) high level of unemployment. Because the real GDP is below it's full employment level of real output, which means the employment in the economy is lower than the desired level of full employment .this leads to higher unemployment bin the economy so policy marker is mostly concerned about the high Level of unemployment in the economy . Rest of the options are inappropriate .

Ans 15. (E) the fed should buy the bonds. Because when fed buy the bonds then it leads to increase in supply of money in the economy which is basically the expansionary monetary policy when money supply increases , which leads to rightward shift in the aggregate demand curve of the economy , as when people have more money in there hands they will demnad more if the goods so AD shifts rightward which leads to shift in equilibrium such than new level of real GDP shifts from Q1 to QF level and increase in price level . So it means by this move we will be able to achieve desired level of unemployment and full employment level of real output in the economy . Rest of the option are incorrect because none of them leads to rightward shift in aggregate demand curve.

Ans 16.( C) consumption increase, investment increse ,AD increase , real GDP also increases . Because when tax rates fall than the disposable income after tax cut increases which leads to increase in consumption level and increased investment in the economy which leads ti rightward shift of aggregate demand curve and hence real GDP increases. Rest all options are incorrect .