At the time of the Great Depression, fiscal and monetary policy were not well understood.Booms and busts are natural responses to ever-changing economic conditions.JPlease label the statements as true or false regarding economic booms and busts.With enough careful planning, fiscal and monetary policy can prevent recessions.Had the U.S. government used fiscal and monetary policy more effectively, many economists believethat the Great Depression would not have been as severe.At the time of the Great Depression, fiscal and monetary policy were not well understood.Booms and busts are natural responses to ever-changing economic conditions.falseAnswer Banktrue

With enough careful planning, fiscal and monetary policy can prevent recessions.False - While…

Answered: At the time of the Great Depression,…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Start with a brief introduction that explains use of Government policy to control the economy. When is it appropriate to use monetary and fiscal policy to stimulate or stabilize the economy? Look at both. When is it inappropriate to use monetary and fiscal policy to stimulate or stabilize the economy? Look at both. What specific fiscal policy tools would you use to stimulate aggregate demand and how? What specific monetary policy tools would you use to stimulate aggregate demand and how? What is your conclusion, should policymakers use the monetary and or fiscal policy, or a combination of both, to stimulate aggregate demand? Explain your reasoning.
The graph below depicts an economy where an increase in aggregate demand has caused Inflation. Assume the government decides to conduct fiscal policy by changing taxes to bring Inflation under control. Price Level 160 150 140 130 120 110 100 90 80 70 60 50 Fiscal Policy LRAS AS Real GDP (billions of dollars) AD₁ AD 40 80 160 240 320 400 480 560 640 720 800 Instructions: Round your answers to 2 decimal places. If you are entering a negative number include a minus sign. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? billion b. If the MPC is 0.75, how much do taxes need to change to shift aggregate demand by the amount you found in part a? $ billion Suppose Instead that the MPC is 0.5. c. How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and taxes need to change by $ billion.
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Fiscal Policy Price Level 160 LRAS AS 140 120 100 80 60 40 20 0 AD 1 AD 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? EA billion Suppose instead that the MPC is 0.75. c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.
None
Extra Credit The economy of the country Keinesia is heavily dependent on imported oil. Due to a crisis in the Middle East, the oil price has sharply increased. 1. What do you expect to happen to the equilibrium output and prices? Use the AD-AS model to illustrate it. 2. You are the economic adviser to the president of Keinesia. a. Would you advise him/her to implement Fiscal Policy? b. What type of Fiscal Policy would you recommend? c. Illustrate the effect of the Fiscal Policy on the equilibrium output and prices? Use the AD- AS model in part (a) to illustrate it.
What is 8
Attached: figure 1: Hayek’s (Classical) AD-AS Model Question 1 Why does Hayek’s aggregate supply curve always lead to an equilibrium level of national output equal to the full-employment level of real GDP? Question 2 Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayek’s idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce? Question 3 Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not?
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Instructions: Enter your answers as a whole number. B. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.75, how much does government purchases need to change to shift aggregate demand by the amount you found in parta? $ billion Suppose instead that the MPC is 0.6. C. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $1 Price Level 160 140 120 100 80 60 40 20 0 LRAS (240,90) AD₁ billion. Real GDP (billions of dollars) AS AD 80 160 240 320 400 480 560 640 720 800
pols Homework (Ch 15) 4. Using fiscal policy to fight inflation Consider the hypothetical economy depicted on the graph. Initially, the economy operates below full-employment output at a price level of 105 and real GDP of $480 billion. Then aggregate demand (AD) increases from AD₁ to AD₂, moving the economy up along the intermediate and classical ranges of the aggregate supply (AS) curve. Real GDP increases to the full-employment output level of $540 billion, and the price level increases to 120. PRICE LEVEL (CPI) 130 125 120 115 110 100 95 90 85 80 400 420 440 AS AD₂ 460 REAL GDP (Billions of dollars) AD₁ 480 500 520 540 560 580 600 MacBook Pro (?) X
The great inflation of the 70's can be partially explained by the fact that the policymaker misinterpreted the output gap and O O tightened fiscal policy tightened monetary policy loosened fiscal policy loosened monetary policy
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Price Level 160 140 LA 120 100 80 60 40 20 0 Fiscal Policy LRAS AD₁ Real GDP (billions of dollars) billion AS 80 160 240 320 400 480 560 640 720 800 AD O Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? billion B b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? Suppose instead that the MPC is 0.75. c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.

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