(a) The hypothetical information in the following table shows what the situation will be in if the government of Singapore does not use fiscal policy: Year 2020 Real GDP Price Level 110.0 120.5 Potential GDP S$20.1 billion S$20.75 billion S$20.1 billion S$20.1 billion 2021 i. If the government of Singapore wants to keep its real GDP at its potential level in 2021, determine whether an expansionary or contractionary policy should be applied. ii. If government of Singapore is successful in keeping real GDP at its potential level in 2021. discuss what would happen to the level of real GDP. potential

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(a) The hypothetical information in the following table shows what the situation will
be in if the government of Singapore does not use fiscal policy:
Year
2020
2021
Potential GDP
S$20.1 billion
Real GDP
S$20.1 billion
S$20.1 billion
Price Level
110.0
S$20.75 billion
120.5
If the government of Singapore wants to keep its real GDP at its potential
level in 2021, determine whether an expansionary or contractionary policy
should be applied.
i.
ii.
If government of Singapore is successful in keeping real GDP at its potential
level in 2021, discuss what would happen to the level of real GDP, potential
real GDP, inflation rate and unemployment rate.
iii.
Draw an aggregate demand and aggregate supply diagram to illustrate the
impacts and changes in (ii). Be certain to include L.RAS curves for 2020 and
2021; SRAS curves for 2020 and 2021; AD curves for 2020 and 2021, with
and without fiscal policy action; and equilibrium real GDP and the price
level in 2021, with and without fiscal policy.
Transcribed Image Text:(a) The hypothetical information in the following table shows what the situation will be in if the government of Singapore does not use fiscal policy: Year 2020 2021 Potential GDP S$20.1 billion Real GDP S$20.1 billion S$20.1 billion Price Level 110.0 S$20.75 billion 120.5 If the government of Singapore wants to keep its real GDP at its potential level in 2021, determine whether an expansionary or contractionary policy should be applied. i. ii. If government of Singapore is successful in keeping real GDP at its potential level in 2021, discuss what would happen to the level of real GDP, potential real GDP, inflation rate and unemployment rate. iii. Draw an aggregate demand and aggregate supply diagram to illustrate the impacts and changes in (ii). Be certain to include L.RAS curves for 2020 and 2021; SRAS curves for 2020 and 2021; AD curves for 2020 and 2021, with and without fiscal policy action; and equilibrium real GDP and the price level in 2021, with and without fiscal policy.
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