Question

3/21/2019 Assignment Print view ECONOMICS Award: 10.00 polints Contractionary Fiscal Pollcy- Graphlcally Exercise 4 The graph below depicts an economy where a decline in aggregate demand has caused a recession. This economy's current level of real GDP (Y1) is below its long-run equilibrium, which is illustrated by the long-run aggregate supply curve(LRAS), and a price level (P1)below the equilibrium value of Pe a. Without any fiscal policy, we expect the economy to eventually return to full employment on its own. Use the graph below to llustrate this process. Instructions: Use the tool provided to plot 'New Curve. Plot only the endpoints of the line, keeping the New Curve parallel to the existing curve with the appropriate intersection (2 points total). Label your line appropriately Self-Correction Tools RAS New Curve AD Real GDP b. Assume the government instead enacts expansionary below to illustrate this process ▼ fiscal policy to reduce the burden of the recession. Use the graph Instructions: Use the tool provided 'New Curve to plot the appropriate line. Plot only the endpoints of the line (2 points total). Label your line appropriately http://ezto. mheducation .com/hm.tpx?todo-c15SinglePrintView&singleQuestionNo=2&postSubmissionView=13252709710256203&wid=13252709710 1/2 3/21/2019 Assignment Print view Fiscal Policy Tools LRAS1 New Curve AS CL AD AD Real GDP c. When comparing the two options for restoring the economy to its full-employment level of output, the benefit of allowing the economy to return to full employment on its own is that: Ofull employment is reached with a higher price level. Olower unemployment and higher real GDP are reached. O full employment is reached with a lower price level Othe economy will recover faster without fiscal policy References Graphing Difficulty 2 Medium Contractionar Fiscal Policy Graphically Exercise Leaming Objective llustrate the effect of fiscal policy on equilibrium real GDP and price level httpMezto. mheducation .com/hm.tpx?todo-c15SinglePrintView&singleQuestionNo=2&postSubmissionView=13252709710256203&wid-13252709710 22

Answer 1

The given informahon a) Since intev secds As to the niht of AD te demand lek do Yea/s decease เก re oate demard C$Billon) 40o-5505o +5 1-0.75 0.35 aneake in ta,. 150 --So billion

-o.6 -ate mubt by 150 billion and -> tax must be +15ㅇ 1.5 loo billion loo