• Practice Suppose the economy is currently at long-run equilibrium (Real GDP equals Potential GDP). Income tax rises. Show on a graph what will happen to price level, unemployment and Real GDP. Now suppose there is no government intervention, show how this economy will come back to potential GDP in the long-run Using another graph, suppose the government could not wait for the long-run, how will they use fiscal policy to help the economy return to full employment?
• Practice Suppose the economy is currently at long-run equilibrium (Real GDP equals Potential GDP). Income tax rises. Show on a graph what will happen to price level, unemployment and Real GDP. Now suppose there is no government intervention, show how this economy will come back to potential GDP in the long-run Using another graph, suppose the government could not wait for the long-run, how will they use fiscal policy to help the economy return to full employment?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Practice
Suppose the economy is currently at long-run equilibrium (Real
GDP equals Potential GDP). Income tax rises. Show on a graph
what will happen to price level, unemployment and Real GDP.
Now suppose there is no government intervention, show how
this economy will come back to potential GDP in the long-run
Using another graph, suppose the government could not wait for
the long-run, how will they use fiscal policy to help the economy
return to full employment?
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