On the following graph, AD, represents the initial aggregate demand curve in a hypothetical economy, and AS represents the initial aggregate supply curve. The economy's full-employment output is $12 trillion. PRICE LEVEL (CPI) 106 105 104 103 102 101 100 95 6 7 O AD 8 I AS AD Full Employment This is an example of 9 10 REAL GDP (Trillions of dollars) 12 13 14 15 The initial short-run equilibrium level of real GDP is As a result, the equilibrium level of real GDP will be AD₂ 16 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? O AD₁ O AD₂ AD trillion, and the initial short-run equilibrium price level is trillion, and the equilibrium price level will be According to critics of Keynesian fiscal policy, which of the following is true in this case? O The increase in deficit-financed government spending has no impact on real GDP and the price level. O The increase in deficit-financed government spending causes real GDP to increase, but not to full-employment output. O The increase in deficit-financed government spending causes real GDP to increase to full-employment output. O Real GDP does not increase; only the price level increases.
On the following graph, AD, represents the initial aggregate demand curve in a hypothetical economy, and AS represents the initial aggregate supply curve. The economy's full-employment output is $12 trillion. PRICE LEVEL (CPI) 106 105 104 103 102 101 100 95 6 7 O AD 8 I AS AD Full Employment This is an example of 9 10 REAL GDP (Trillions of dollars) 12 13 14 15 The initial short-run equilibrium level of real GDP is As a result, the equilibrium level of real GDP will be AD₂ 16 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? O AD₁ O AD₂ AD trillion, and the initial short-run equilibrium price level is trillion, and the equilibrium price level will be According to critics of Keynesian fiscal policy, which of the following is true in this case? O The increase in deficit-financed government spending has no impact on real GDP and the price level. O The increase in deficit-financed government spending causes real GDP to increase, but not to full-employment output. O The increase in deficit-financed government spending causes real GDP to increase to full-employment output. O Real GDP does not increase; only the price level increases.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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the choices for the very last blank are: partial crowding out, complete crowding out, and zero crowding out
Transcribed Image Text:On the following graph, AD, represents the initial aggregate demand curve in a hypothetical economy, and AS represents the initial aggregate supply
curve. The economy's full-employment output is $12 trillion.
PRICE LEVEL (CPI)
106
105
104
103
102
101
100
95
6
7
O AD
8
I
AS
AD
Full Employment
This is an example of
9
10
REAL GDP (Trillions of dollars)
12 13 14 15
The initial short-run equilibrium level of real GDP is
As a result, the equilibrium level of real GDP will be
AD₂
16
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?
O AD₁
O AD₂
AD
trillion, and the initial short-run equilibrium price level is
trillion, and the equilibrium price level will be
According to critics of Keynesian fiscal policy, which of the following is true in this case?
O The increase in deficit-financed government spending has no impact on real GDP and the price level.
O The increase in deficit-financed government spending causes real GDP to increase, but not to full-employment output.
O The increase in deficit-financed government spending causes real GDP to increase to full-employment output.
O Real GDP does not increase; only the price level increases.
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