### Educational Content: Understanding Economic Output and Interest Rates**Question:**Based on the diagram, if potential output equals 5,000 and the real interest rate is 5 percent, then there is a ______ gap and the Fed must ______ the real interest rate so that output will equal potential output.**Graph Explanation:**The graph presented is an economic model illustrating Potential Aggregate Expenditure (PAE) against Output (Y). 1. **Axes:** - The vertical axis represents Potential Aggregate Expenditure (PAE). - The horizontal axis represents Output (Y).2. **Lines:** - A 45-degree line bisects the graph; this line represents points where PAE equals Output (Y), indicating equilibrium. - Three Expenditure Lines are shown, each corresponding to different real interest rates: - Expenditure Line (r = 1%) - Expenditure Line (r = 3%) - Expenditure Line (r = 5%)3. **Observations:** - The Expenditure Lines slope upwards, indicating a positive relationship between expenditure and output. - At a real interest rate of 5%, the expenditure line doesn’t intersect with the 5,000 potential output, suggesting an output gap.**Options:**- A recessionary; reduce- No output; not change- A recessionary; raise- An expansionary; raiseThis question helps illustrate how varying interest rates can influence economic output and guide monetary policy adjustments.

A recessionary gap is where actual output is less than potential output. An inflationary or…

Answered: Based on the diagram, if potential…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Interest rate (percent per year) MS XA MD₁ 2 0 3.0 3.1 3.2 3.3 3.4 3.5 Real money (trillions of 2009 dollars) The figure above illustrates the effect of O a decrease in real GDP. an increase in real GDP. an increase in the monetary base. MDO a decrease in the monetary base.
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Starting from potential output, if consumer confidence decreases and consumers decide to spend less, then this will generate a(n) ____ output gap and the price level will ceteris paribus. O inflationary; increase O inflationary; decrease O recessionary; increase O recessionary; decrease
The AS curve shifts to the left when O All listed options are correct. the cost of production rises the government does expansionary fiscal policy O net exports rises O we lower interest rates
(in trillions) anupuedgejetoally $35 $30 $25 $20 $15 $10 $5 $5 $10 $15 $20 $25 45° Line AE $30 $35 Real GDP (in trillions) The central bank has recently conducted monetary policy that substantially reduces the real interest rate. As a result, autonomous spending increases by $5 trillion. Examine the effects of this reduction in the real interest rate by identifying (1) the amount of autonomous spending before the real interest rate falls, (2) the amount of induced spending before the real interest rate falls, (3) the level of equilibrium Real GDP before the real interest rate falls, (4) the value of the spending multiplier, (5) the level of equilibrium Real GDP after the real interest rate falls, and (6) the amount of induced spending after the real interest rate falls.
1. A change in autonomous spending results to a shift of the LM curve either to the left or right. O a. False; movement along the IS curve O b. False; movement along the LM curve O c. True O d. False; shift of the IS curve 2. Which of the following statements is true? 3. O a. The goods and money markets can never be in equilibrium. O b. The goods and money markets are in equilibrium at the points where the money market is in equilibrium. O c. The goods and money markets are in equilibrium at their point of intersection only. O d. The goods and money markets are in equilibrium at the points where the goods market is in equilibrium. Which of the following describes the steepest investment schedule? O a. 1-450-8(3) O b. 1=450-2(3) O c. 1=450-9(3) O d. 1=450-5(3)
How do fluctuations in aggregate demand and short-run aggregate supply bring fluctuations in real GDP around potential GDP? Starting from a full-employment equilibrium, a decrease in aggregate demand and creates gap. O A. increases real GDP above potential GDP; an inflationary OB. decreases real GDP below potential GDP; an inflationary OC. increases real GDP above potential; a recessionary O D. decreases real GDP below potential GDP; a recessionary _, short-run aggregate , and the economy returns to a full-employment In the long run, the money wage rate supply equilibrium. O A. rises; increases B. falls; decreases C. rises; decreases D. falls; increases
Price Level 8 7 6 X 50 4 3 2 1 0 2 4 AS AD 6 8 10 12 14 16 18 20 Real GDP (in billions of dollars per year) billion. QE Instructions: Enter your responses as a whole number. a. Identify the macro equilibrium. Instructions: Use the tool provided 'QE' to identify the current macro equilibrium on the graph. The current macro equilibrium is when real GDP is $ Suppose that full-employment GDP is $13 billion. b. The real GDP gap is $ c. Aggregate demand must shift (left or right) by $ billion. billion to achieve the full-employment equilibrium.
please give correct answer and urgently. I will give POSITVE rating if you give correct answer. don't give answer if you aren't sure about answer
I need help on this using 1. Keynesian cross and IS-Lm model
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6. Suppose real GDP in an economy equals its potential output of $2,000 billion, the multiplier is 2.5, investment is raised by $200 billion, and the increased investment does not affect the economy's potential. a. Show the short- and long-run effects of the change upon real GDP and the price level, using the graphical framework for the model of aggregate demand and aggregate supply. b. Would real GDP rise by the multiplier times the change in investment in the short run? In the long run? Explain.

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