Question

LAS Price AO Figure 3 SAS level Q QF Real GOP Refer to figure 3 above N) 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 0. Crowding out as result of high budget defects 3. An overallocation of scarce resources creating inefficiencies Refer to figure 3 above 15) What should policy makers pursue to alleviate the problem- A Pure contractionary fiscal policy Pursue contraction monetary policy The Evernment should be The fed should sell bands 5. The Fed should buy bonds 16. When the soutomaties le sauvates for some come taxes, the result ismest skaly to ben Al consumption. Invest 1 Hank Deposas. MY SONA 11 consumption retient Floof interest rates an impia 1

Answer 1

Answer 14. High levels of unemployment

reason- Recessionary gap creates high levels of unemployment in the economy for longer period of time.

Answer 15. The fed should buy bonds

reason- When Fed buys bonds, money supply increases. This shifts the AD curve to the right.

So the recessionary gap eliminates.

Answer 16. c. Consumption ↑, Investment ↑, AD↑, Real GDP↑

reason- Whn tax rate falls, disposable income rises to consumption rises, investment rises . AD rises as consumption and investment rises. so Real GDP rises.