Price LevelRefer to the figure below. When equilibrium occurs at point a, the economy is exhibiting a(n): a) recessionary gap of ab,which calls for expansionary fiscal policy b) recessionary gap of ab, which calls for contractionary fiscal policy c)inflationary gap of ab, which calls for expansionary fiscal policy d) inflationary gap of ab, which calls for contractionaryfiscal policy e) state in which there is no recessionary gap or inflationary gapJCa✓ d-PotentialAS₂ OutputbAD₂Real GDPAD₁

Detailed explanation: The short-run macroeconomic equilibrium is happening at point a.The real GDP…

Answered: Price Level Refer to the figure below.…

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 1TY

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Aa30 Economics
P Tax Rate (%) B C Tax Revenue ($) Refer to the graph. Critics of supply-side economics would argue that tax rates are currently between Ob and d and that a decrease in tax rates will increase tax revenues. 0 and b and that a decrease in tax rates will increase tax revenues. 0 and b and that a decrease in tax rates will decrease tax revenues. Ob and d and that a decrease in tax rates will decrease tax revenues.
The aggregate demand function: yad =C+1+G₁ = 500+ 0.75Y is plotted on the graph to the right. The graph also shows the 45° line where aggregate output Y equals aggregate demand yad for all points. What happens to aggregate output if government spending rises by 100? The equilibrium level of output rises by $ billion. (Round your response to the nearest billion.) Consumption Expenditure, C ($ billions) 3000- 2800- 2600- 2400- 2200- 2000- 1800- 1600- 1400- 1200- 1000- 800- 600- 400- 200- 0- 0 yad =C+I+G₁ = 500 +0.75Y Y = yad 45° 400 800 1200 1600 2000 2400 2800 Disposable Income ($ billions)
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 U
The economy of Newland is in short-run macroeconomic equilibrium. The current real output is $400 billion, and the full employment output is $500 billion. The marginal propensity to consume is 0.8. (a) Is the economy experiencing a recessionary output gap or an inflationary output gap? Explain. (b) Assume Newland’s government is considering taking action to close the output gap identified in part (a). (i) Calculate the minimum change and indicate the direction of change in government spending required to shift the aggregate demand curve to close the output gap. Show your work. (ii) If instead Newland’s government changes income taxes without changing government spending, calculate the minimum change and indicate the direction of change in income taxes required to shift the aggregate demand curve to close the output gap. Show your work. (c) Which fiscal policy action, changing government spending or changing income taxes, is more effective in closing the output gap? Explain. (d)…
Consider the following economy: C = 300 + 0.8 (Y – T) I = $300 G = $200 and T = $250 What is the equilibrium level of national income? What is the change in national income, if only government spending increases by $10? What is the government spending multiplier? What is the change in national income, if only taxes increase by $10? What is the tax multiplier? Based on (b) and (c), does the balanced budget multiplier theorem hold? What is the change in national income, if both government spending and taxes increase by $10 each?
Compare the impact of a recession that reduces consumer income by 10 percent on the consumption of durable goods and house rentals. Suppose that the income elasticity of demand for durable goods is 1.5 and the income elasticity of demand for house rentals is 0.3. Based on your response, make a policy argument to support through government funding either businesses or house rentals.
Price Level 0 D (C Multiple Choice (A AS₂ AS, (B AD₁ Q₂ Q₁ Q₂ Real Domestic Output AD₂ Refer to the graph. Assume that the economy is initially at full-employment equilibrium at point A. If there is cost-push inflation in this economy and the government pursues an expansionary fiscal policy, then in the long run the price level will rise from P₁ to P3 and real output will be Q₁. price level will rise from P₁ to P2 and real output will be Q2. price level will be P₁ and real output will be Q₁.
16. Which of the following would not cause a shift in (Ad): A) a reduction in income tax B) a reduction in interest rates C) an increase in government spending D) a fall in the cost of production
A change in which of the following variables will have NO direct effect on domestic demand?domestic incomegovernment spendingtaxesthe interest rate (r)none of the above
Suppose actual real GDP is $13.74 trillion, potential real GDP is $12.69 trillion, and the marginal propensity to consume is 0.6. If we ignore price effects, and if the government already decided to increase its spending by $1.61 trillion, by how many trillions of dollars should the government change its lump sum taxes to fix the gap? (Round this to two digits after the decimal and enter this value as either a positive value or a negative value without the dollar sign.) Correct Answer: 3.38 Please solve to get that same answer
Assume that marginal propensity to consume (MPC) is 73% and the full employment output (Real GDP) is $500 million. If the current actual Real GDP is at $300 million,. government spending by would bring the economy to full employment Real GDP output. a) increasing; $740,000,000 b) increasing: $135, 135, 135.1, c) decreasing; $ 54,054,054.05 d) increasing: $54,054,054.05

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