For all graphs, be sure to correctly and completely label all axes and curves and use arrows to indicate the direction of any shifts. Assume Spain is currently operating with a high cyclical unemployment rate a. Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves. L Label the equilibrium price level PL, and the equilibrium real output Y₁. Label the full-employment level of output Ye b. Where on a production possibilities curve representing full employment in Spain would current output be-on, outside, or inside the PPC? c. What can be assumed about inflation based on the information above? d. Assume that the output gap is estimated to be $100 billion and the government decides to take action. If the marginal propensity to consume is 0.9, by how much would it ne to change government spending to close the gap? Show your work e. If instead, government chose to use the income tax to close the output gap rather than changes in spending, calculate the change in tax revenue the government would nee to close the gap. Assume the same figures as part (d). t. What is one possible automatic stabilizer in the economy that would contribute to closing this output gap? g. Assume that instead of intervening, the government allowed the economy to self-adjust in the long run. On your graph from part (a), ilustrate how the economy would self- adjust in the long run. h. If the GDP deflator is 110 in the year that the output gap is identified, and three years later it is 105, does this mean the recessionary gap is likely gone or that it still exists? Explain
For all graphs, be sure to correctly and completely label all axes and curves and use arrows to indicate the direction of any shifts. Assume Spain is currently operating with a high cyclical unemployment rate a. Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves. L Label the equilibrium price level PL, and the equilibrium real output Y₁. Label the full-employment level of output Ye b. Where on a production possibilities curve representing full employment in Spain would current output be-on, outside, or inside the PPC? c. What can be assumed about inflation based on the information above? d. Assume that the output gap is estimated to be $100 billion and the government decides to take action. If the marginal propensity to consume is 0.9, by how much would it ne to change government spending to close the gap? Show your work e. If instead, government chose to use the income tax to close the output gap rather than changes in spending, calculate the change in tax revenue the government would nee to close the gap. Assume the same figures as part (d). t. What is one possible automatic stabilizer in the economy that would contribute to closing this output gap? g. Assume that instead of intervening, the government allowed the economy to self-adjust in the long run. On your graph from part (a), ilustrate how the economy would self- adjust in the long run. h. If the GDP deflator is 110 in the year that the output gap is identified, and three years later it is 105, does this mean the recessionary gap is likely gone or that it still exists? Explain
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
IN A HURRY!
please answer A-C
Transcribed Image Text:For all graphs, be sure to correctly and completely label all axes and curves and use arrows to indicate the direction of any shifts.
Assume Spain is currently operating with a high cyclical unemployment rate.
a. Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves.
1. Label the equilibrium price level PL, and the equilibrium real output Y₁.
ii. Label the full-employment level of output Ye
b. Where on a production possibilities curve representing full employment in Spain would current output be-on, outside, or inside the PPC?
c. What can be assumed about inflation based on the information above?
d. Assume that the output gap is estimated to be $100 billion and the government decides to take action. If the marginal propensity to consume is 0.9, by how much would it ne
to change government spending to close the gap? Show your work.
e. If instead, government chose to use the income tax to close the output gap rather than changes in spending, calculate the change in tax revenue the government would nes
to close the gap. Assume the same figures as part (d).
f. What is one possible automatic stabilizer in the economy that would contribute to closing this output gap?
g. Assume that instead of intervening, the government allowed the economy to self-adjust in the long run. On your graph from part (a), illustrate how the economy would self-
adjust in the long run.
h. If the GDP deflator is 110 in the year that the output gap is identified, and three years later it is 105, does this mean the recessionary gap is likely gone or that it still exists?
Explain,
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education