If money demand becomes more sensitive to changes in income, then a. the LM curve will become flatter b. the AD curve will become flatter c. fiscal policy will be more effective d. Impossible to say without further information
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- Suppose a government has a tax revenue shortfall. Will hyperinflation inevitably follow unless the government cuts its fiscal expenditures?If the MPS in an economy is 0.5, government could shift the aggregate demand curve leftward by $20 billion byA higher value of the fiscal multiplier will a. Effect the slope of the LM curve b. Make the IS curve flatter c. Make the LM curve flatter d. Make the IS curve steeper
- Consider the graph at right showing an economy in recession. Aggregate demand is currently at AD. Equilibrium currently occurs at Eo. If aggregate demand was ADF, there would be full employment. Suppose the government engages in fiscal policy that results in full crowding out. Using the line drawing tool, draw the new demand curve that shows full crowding out. Carefully follow the instructions above, and only draw the required object. Price level Eo EF ADO F Real GDP per Year ($ trillions) SRASO ADF O UIf the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $30 billion byIn an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by: $ billion.
- Show all formulas and all work Given: Rufull employment = 2% Ru = 4% Potential GDP= $12,000 billion MPC = ¾ = .75 Find the multiplier Find GDPGAP% and then the GDPGAP Find the Recessionary Expenditure GAP Find the Government Spending that could close the GDPGAP Find the Tax change that could close the GDPGAP Find the amount of spending necessary to close the GDPGAP under a Balanced Budget spending program.An economy is operating with an output that is $400 billion dollars below its natural rate of $2000 billion dollars and fiscal policy makers want to close the recessionary gap. The central bank agrees to hold the interest rate constant so there is no crowding out. The marginal propensity to consume is 4/5. In which direction and by how much would the government spending need to change to close the gap? Fully explain your answer and provide a graph that shows the initial situationAn economy is operating with output $400 billion above its natural level, and fiscal policymakers want to close this expansionary gap. The central bank agrees to adjust the money supply to hold the interest rate constant, so there is no crowding out. The marginal propensity to consume is 4/5, and the price level is completely fixed in the short run. To close the expansionary gap, the government would need to spending by billion.
- The use of government purchases (G) as a fiscal policy tool can have an effect on long-run growth in the economy. Under what circumstances might an increase in G cause the level of potential output (Y*) to increase? A. If the increase in G causes a permanent increase in the marginal propensity to consume, which causes a permanent rightward shift of the AD curve. B. If the increase in G is offset by an equal decrease in C, I, and NX. C. If the increase in G crowds out private investment. D. If the increase in G leads to a permanent increase in the level of autonomous saving in the economy. E. If the increase in G is spent on public infrastructure that increases the productivity of private-sector production.Q21. Suppose the economy starts in its long-run equilibrium. Then, a negative demand shock causes the economy to be out of equilibrium. The government can respond with can cause the price level to be a. contractionary; higher b. expansionary; lower c. contractionary; lower d. expansionary; higher fiscal policy to restore the economy than when the economy automatically to its long-run equilibrium. This corrects itself. mittelaLet the marginal propensity to consume for an economy be 0.9 (MPC = 0.9). Policymakers in the federal government view the economy as "overheating" and want to enact fiscal policy to reduce AD. This scenario applies questions 31 - 33. Question 31 If the federal government reduces it purchases, G, by $50 billion, by much will real GDP change assuming no mitigating factors on the fiscal multiplier? Edit View Insert Format Tools Table 12pt v Paragraph v BIU A ...
