PRICE LEVEL (CPI) 105 104 4 103 102 + 101 100 99 98 97 95 + 8 7 O AD₁ 8 O AD2 O AD3 AD₁ Full Employment The initial short-run equilibrium level of real GDP is $ 8 10 11 12 13 14 REAL GDP (Billions of dollars) 15 As a result, the equilibrium level of real GDP will be $ AD 3 16 AD₂ 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 Keynesian economists, the government policy may result in zero crowding out. Which of the following aggregate demand curves shown in the previous graph would be consistent with zero crowding out? Equilibrium billion, and the initial short-run equilibrium price level is billion, and the equilibrium price level will be According to Keynesian economists, which of the following is true in this case? 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. O The increase in deficit-financed government spending has no impact on real GDP or the price level. O The increase in deficit-financed government spending causes real GDP to increase, but not to full-employment output.
PRICE LEVEL (CPI) 105 104 4 103 102 + 101 100 99 98 97 95 + 8 7 O AD₁ 8 O AD2 O AD3 AD₁ Full Employment The initial short-run equilibrium level of real GDP is $ 8 10 11 12 13 14 REAL GDP (Billions of dollars) 15 As a result, the equilibrium level of real GDP will be $ AD 3 16 AD₂ 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 Keynesian economists, the government policy may result in zero crowding out. Which of the following aggregate demand curves shown in the previous graph would be consistent with zero crowding out? Equilibrium billion, and the initial short-run equilibrium price level is billion, and the equilibrium price level will be According to Keynesian economists, which of the following is true in this case? 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. O The increase in deficit-financed government spending has no impact on real GDP or the price level. O The increase in deficit-financed government spending causes real GDP to increase, but not to full-employment output.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:PRICE LEVEL (CPI)
105
104 4
103
102 -
101 +
100
99
98
97
96
B
7
O AD₁
O AD2
8
O AD3
AD
Full Employment
The initial short-run equilibrium level of real GDP is $
8
10 11
12 13 14
REAL GDP (Billions of dollars)
AD3
As a result, the equilibrium level of real GDP will be S
15 16
AD₂
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 Keynesian economists, the government policy may result in zero crowding out. Which of the following aggregate demand
curves shown in the previous graph would be consistent with zero crowding out?
Equilibrium
billion, and the initial short-run equilibrium price level is
billion, and the equilibrium price level will be
According to Keynesian economists, which of the following is true in this case?
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.
O The increase in deficit-financed government spending has no impact on real GDP or the price level.
O The increase in deficit-financed government spending causes real GDP to increase, but not to full-employment output.
Transcribed Image Text:6. Crowding out
On the following graph, AD₁ 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 billion.
On the following graph, use the grey point (star symbol) to mark the equilibrium. (Note: You will not be graded on any adjustments made to the
graph.)
PRICE LE VEL (CPI)
106
105 +
104
103
102 +
101-
100
99
98
97
98
6
7
8
AS
AD,
Full Employment
9
10
11
12 13 14
REAL GDP (Billions of dollars)
The initial short-run equilibrium level of real GDP is S
15
AD 3
18
AD2
Equilibrium
billion, and the initial short-run equilibrium price level is
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 Keynesian economists, the government policy may result in zero crowding out. Which of the following aggregate demand
curves shown in the previous graph would be consistent with zero crowding out?
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