On the following graph, AD₁ represents the initial aggregate demand curve in a hypothetical economy, and SRAS represents the initial aggregate supply curve. The economy's natural real GDP is $12 billion. PRICE LEVEL • AD2 NRGDP AD4 AD3 AD₁ 10 12 REAL GDP (Billions of dollars) 14 AD₂ SRAS AD₂ The initial short-run equilibrium level of real GDP is $10 billion Y , and the initial short-run equilibrium price level is 100 This is an example of AD₁ Suppose the government, seeking full employment, borrows money and increases its expenditures by the amount it believes necessary to close the output gap. According to critics of Keynesian fiscal policy, which curve in the previous graph will most likely be the new aggregate demand curve? (? As a result, the equilibrium level of real GDP will be will be , and the equilibrium price level According to critics of Keynesian fiscal policy, which of the following is true in this case? The increase in deficit-financed government spending causes real GDP to increase, but not to natural real GDP. The increase in deficit-financed government spending causes real GDP to increase to natural real GDP. The increase in deficit-financed government spending has no impact on real GDP and the price level. Real GDP does not increase; only the price level increases.
On the following graph, AD₁ represents the initial aggregate demand curve in a hypothetical economy, and SRAS represents the initial aggregate supply curve. The economy's natural real GDP is $12 billion. PRICE LEVEL • AD2 NRGDP AD4 AD3 AD₁ 10 12 REAL GDP (Billions of dollars) 14 AD₂ SRAS AD₂ The initial short-run equilibrium level of real GDP is $10 billion Y , and the initial short-run equilibrium price level is 100 This is an example of AD₁ Suppose the government, seeking full employment, borrows money and increases its expenditures by the amount it believes necessary to close the output gap. According to critics of Keynesian fiscal policy, which curve in the previous graph will most likely be the new aggregate demand curve? (? As a result, the equilibrium level of real GDP will be will be , and the equilibrium price level According to critics of Keynesian fiscal policy, which of the following is true in this case? The increase in deficit-financed government spending causes real GDP to increase, but not to natural real GDP. The increase in deficit-financed government spending causes real GDP to increase to natural real GDP. The increase in deficit-financed government spending has no impact on real GDP and the price level. Real GDP does not increase; only the price level increases.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:On the following graph, AD1 represents the initial aggregate demand curve in a hypothetical.
economy, and SRAS represents the initial aggregate supply curve. The economy's natural real GDP
is $12 billion.
PRICE LEVEL
106
102
8
98
NRGDP
o AD2
AD4
ⒸAD3
AD₁
12
REAL GDP (Billions of dollars)
AD₂
SRAS
AD₂
AD₁
The initial short-run equilibrium level of real GDP is $10 billion
equilibrium price level is 100
This is an example of
(?
Suppose the government, seeking full employment, borrows money and increases its expenditures
by the amount it believes necessary to close the output gap. According to critics of Keynesian fiscal
policy, which curve in the previous graph will most likely be the new aggregate demand curve?
As a result, the equilibrium level of real GDP will be
will be
and the initial short-run
and the equilibrium price level
According to critics of Keynesian fiscal policy, which of the following is true in this case?
The increase in deficit-financed government spending causes real GDP to increase, but
not to natural real GDP.
The increase in deficit-financed government spending causes real GDP to increase to
natural real GDP.
The increase in deficit-financed government spending has no impact on real GDP and the
price level.
Real GDP does not increase; only the price level increases.
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