1. Country ABC is experiencing the following situation. Its current aggregate demand is illustrated as AD,...
1. Country ABC is experiencing the following situation. Its current aggregate demand is illustrated as AD, producing $10 trillion worth of output. Suppose that the full employment output level/potential output of this country is 12 trillion. Suppose MPS=0.1 and MPI=0.1 a)
Does this economy have an inflationary output gap or recessionary output gap? How much? Label the output gap on the above diagram.
b) If you were the Finance Minister,what would be the fiscal policies that you might use to restore full employment output level? (There should be at least 3 options. Briefly describe how each option should be implemented)
c) If you were to increase the AD, how large should the increase in the AD be if you were to achieve the full-employment? $2 trillion? $4 trillion? Why?
d) For each of the 3 fiscal policies in question b), calculate the size of change in each policy instrument to achieve full employment. Show your steps carefully.
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1. Country ABC is experiencing the following situation. Its
current aggregate demand is illustrated as AD,...
Unit 3: Aggregate Demand, Aggregate Supply, and Fiscal Policy AD, AS, and LRAS Short Run vs....
Unit 3: Aggregate Demand, Aggregate Supply, and Fiscal Policy AD, AS, and LRAS Short Run vs. Long Run Aggregate Supply Draw the economy at full employment 1. In the short run, wages and resource prices will as price levels increase 2. In the long run, wages and resource prices will as price levels increase Shifters of AD and AS Shifters of Aggregate Demand Shifters of Aggregate Supply imi Recessionary Gap Draw an economy in a recession Inflationary Gap Draw an...
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...
Refer to the accompanying table in answering the questions that follow: Aggregate Expenditures (Catlg+Xn+G), Billions 420...
Refer to the accompanying table in answering the questions that follow: Aggregate Expenditures (Catlg+Xn+G), Billions 420 Real Domestic Output, Possible Levels of Employment, Millions 70 90 110 130 150 Billions 400 450 460 500 540 580 600 a. If full employment in this economy is 150 million, will there be an inflationary expenditure gap or a recessionary expenditure gap? (Click to select) What will be the consequence of this gap? (Click to select) By how much would aggregate expenditures in...
Refer to the accompanying table to answer the questions that follow. (1) (2) (3) Real Domestic...
Refer to the accompanying table to answer the questions that follow. (1) (2) (3) Real Domestic Output, Billions Aggregate Expenditures (Ca + lg + Xn + G), Billions $520 $500 Possible Levels of Employment, Millions 90 100 110 120 130 550 560 600 650 700 600 640 680 a. If full employment in this economy is 130 million, will there be an inflationary expenditure gap or a recessionary expenditure gap? Inflationary expenditure gap What will be the consequence of this...
()-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...
B,c,d,e please solve Suppose in the economy autonomous consumption - $100, autonomous investmen $120, government purchases...
B,c,d,e please solve
Suppose in the economy autonomous consumption - $100, autonomous investmen $120, government purchases G-$400 lump-sum taxes = $70, transfers Tr-$20, exports Er $150 autonomous imports im = $30, marginal propensity to consume mpc = 0.8, proportional income tax rate 1-20%, marginal propensity to invest mpi-0.1, and marginal propensity to imports mpm-0.4 (a) For this economy calculate (i) the amount of autonomous spending: (ii) the value of the spending multiplier; (iii) the equilibrium level of output; (iv) the...
QUESTION 4 With an upward-sloping aggregate supply curve, real output can be increased to the full...
QUESTION 4 With an upward-sloping aggregate supply curve, real output can be increased to the full employment output level if: O A Government expenditures are increased by the amount of the GDP gap. O B. Government expenditures are increased by the amount of the AD shortfall. C. Aggregate demand is increased by the amount of the GDP gap. o D. Govenment expenditures are increased by the amount of the AD shortfall divided by the multiplier QUESTION 5 To eliminate an...
a. c. Consider a typical aggregate demand and supply curve of an economy operating at its...
a. c. Consider a typical aggregate demand and supply curve of an economy operating at its long-run equilibrium. Express the condition for long-run equilibrium and graphically show the long- run equilibrium of this economy in an AD-AS diagram. b. Explain and graphically show how a positive AD shock affects the short-run equilibrium of this economy. How do the price level and rGDP change in the short term as a result? Does the positive AD shock result in a recessionary gap...
Use the following to answer questions 6-7: Figure: Determining Fiscal Policy LRAS SRAS AD Aggregate Price Level (P) Agg...
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...
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...
Unit 3: Aggregate Demand, Aggregate Supply, and Fiscal Policy AD, AS, and LRAS Short Run vs. Long Run Aggregate Supply Draw the economy at full employment 1. In the short run, wages and resource prices will as price levels increase 2. In the long run, wages and resource prices will as price levels increase Shifters of AD and AS Shifters of Aggregate Demand Shifters of Aggregate Supply imi Recessionary Gap Draw an economy in a recession Inflationary Gap Draw an...
Refer to the accompanying table in answering the questions that follow: Aggregate Expenditures (Catlg+Xn+G), Billions 420 Real Domestic Output, Possible Levels of Employment, Millions 70 90 110 130 150 Billions 400 450 460 500 540 580 600 a. If full employment in this economy is 150 million, will there be an inflationary expenditure gap or a recessionary expenditure gap? (Click to select) What will be the consequence of this gap? (Click to select) By how much would aggregate expenditures in...
Refer to the accompanying table to answer the questions that follow. (1) (2) (3) Real Domestic Output, Billions Aggregate Expenditures (Ca + lg + Xn + G), Billions $520 $500 Possible Levels of Employment, Millions 90 100 110 120 130 550 560 600 650 700 600 640 680 a. If full employment in this economy is 130 million, will there be an inflationary expenditure gap or a recessionary expenditure gap? Inflationary expenditure gap What will be the consequence of this...
B,c,d,e please solve
Suppose in the economy autonomous consumption - $100, autonomous investmen $120, government purchases G-$400 lump-sum taxes = $70, transfers Tr-$20, exports Er $150 autonomous imports im = $30, marginal propensity to consume mpc = 0.8, proportional income tax rate 1-20%, marginal propensity to invest mpi-0.1, and marginal propensity to imports mpm-0.4 (a) For this economy calculate (i) the amount of autonomous spending: (ii) the value of the spending multiplier; (iii) the equilibrium level of output; (iv) the...
QUESTION 4 With an upward-sloping aggregate supply curve, real output can be increased to the full employment output level if: O A Government expenditures are increased by the amount of the GDP gap. O B. Government expenditures are increased by the amount of the AD shortfall. C. Aggregate demand is increased by the amount of the GDP gap. o D. Govenment expenditures are increased by the amount of the AD shortfall divided by the multiplier QUESTION 5 To eliminate an...
a. c. Consider a typical aggregate demand and supply curve of an economy operating at its long-run equilibrium. Express the condition for long-run equilibrium and graphically show the long- run equilibrium of this economy in an AD-AS diagram. b. Explain and graphically show how a positive AD shock affects the short-run equilibrium of this economy. How do the price level and rGDP change in the short term as a result? Does the positive AD shock result in a recessionary gap...
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...
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...
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