Kindly answer A-D. Thank you. Include correctly labeled diagrams, if useful or required, in explaining your answers.A correctly labeled diagram must have all axes and curves clearly labeled and mustshow directional changes. If the question prompts you to "Calculate," you mustshow how you arrived at your final answer.An economy is currently in a recession.(a) Draw a single correctly labeled graph with both the short-run and long-runPhillips curves. Label the current short-run equilibrium as point X.(b) Is the expected inflation rate greater than, less than, or equal to the actualinflation rate?(c) Will borrowers on fixed-rate loans benefit from the situation that you identified inpart (b)? Explain.(d) Assume the government budget is balanced. In the absence of anydiscretionary policy action, will the government budget move into surplus, deficit, orremain in balance? Explain.(e) On your graph in part (a), show how the economy will adjust in the long run inthe absence of any discretionary policy action.(f) Now assume instead the government increases spending without changingtaxes to close the recessionary gap. What effect will this policy have on thenational debt?(g) Draw a correctly labeled graph of the loanable funds market and show theeffect of the change in the national debt on the equilibrium real interest rate.(h) Based on the change in the equilibrium real interest rate identified in part (g),what will happen to economic growth in the country in the long run? Explain.

Hello. Since your question has multiple sub-parts, we will solve the first three sub-parts for you. If you want remaining sub-parts to be solved, then please resubmit the whole question and specify those sub-parts you want us to solve. a) The SRPC shows the Phillips curve in short-run and LRPC shows the Phillips curve in long run. The LRPC is vertical at a natural rate of unemployment (Un) and SRPC is downward sloping which shows both inflation and unemployment move in a different direction. Since the economy is experiencing recession, the short-run equilibrium in current period is at point X where the unemployment (U) is less than natural Un. b) An expected inflation rate (πe) is more or greater than the actual inflation rate (π) when the economy is in the recession because, in the recession, the actual inflation decreases and unemployment increases above the natural rate.c) The borrower on the fixed-rate loans will benefit or not depends on a real rate of interest which is equal to a difference of nominal rate of interest and expected inflation or inflation. When the actual inflation decreases keeping nominal interest rate same, a real rate of interest increases and borrowers have to pay more interest, so they will be worse off.

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An economy is currently in a recession. (a) Draw a single correctly labeled graph with both the short-run and long-run Phillips curves. Label the current short-run equilibrium as point X. (b) Is the expected inflation rate greater than, less than, or equal to the actual inflation rate? (c) Will borrowers on fixed-rate loans benefit from the situation that you identified in part (b)? Explain.

An economy is currently in a recession. (a) Draw a single correctly labeled graph with both the short-run and long-run Phillips curves. Label the current short-run equilibrium as point X. (b) Is the expected inflation rate greater than, less than, or equal to the actual inflation rate? (c) Will borrowers on fixed-rate loans benefit from the situation that you identified in part (b)? Explain.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Kindly answer A-D. Thank you.

Include correctly labeled diagrams, if useful or required, in explaining your answers.
A correctly labeled diagram must have all axes and curves clearly labeled and must
show directional changes. If the question prompts you to "Calculate," you must
show how you arrived at your final answer.
An economy is currently in a recession.
(a) Draw a single correctly labeled graph with both the short-run and long-run
Phillips curves. Label the current short-run equilibrium as point X.
(b) Is the expected inflation rate greater than, less than, or equal to the actual
inflation rate?
(c) Will borrowers on fixed-rate loans benefit from the situation that you identified in
part (b)? Explain.
(d) Assume the government budget is balanced. In the absence of any
discretionary policy action, will the government budget move into surplus, deficit, or
remain in balance? Explain.
(e) On your graph in part (a), show how the economy will adjust in the long run in
the absence of any discretionary policy action.
(f) Now assume instead the government increases spending without changing
taxes to close the recessionary gap. What effect will this policy have on the
national debt?
(g) Draw a correctly labeled graph of the loanable funds market and show the
effect of the change in the national debt on the equilibrium real interest rate.
(h) Based on the change in the equilibrium real interest rate identified in part (g),
what will happen to economic growth in the country in the long run? Explain.

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