Question 13 Include correctly labeled diagrams, if useful or required, In explaining your answers. A correctly labeled dl question prompts you to 'Calculate," you must show how you arrived at your final answer. Vander's economy is in short-run equilibrium with an inflationary gap of $360 billion, and the marginal propensity to save 0.1. the expected inflation rate is 2% and the natural rate of unemployment is 4% (b) Assume the government takes no policy action with regard to the state of Vander's economy. (i) What will happen to the actual rate of unemployment in the long run? Explain. (it) The flow will the long-run adjustment process be represented in the Phillips curve model? Explain. (c) Assume that instead of waiting for the long-run adjustment, the government of Vander is considering USA fiscal policy to addresses the inflationary gap of 360 billion (ii) How will the effect of the government's action in part (c)(i) be represented in the Phillips curve model (Ili) If the government chooses to increase income taxes instead of decreasing its spending, calculate the maximum change in income taxes required to the inflationary gap? Show your work. (iv) Now suppose instead that the government wants to maintain a balanced budget and decreases both g make the output gap larger, or have no effect on the output gap? Explain. (d) Suppose the government chose to implement only the policy described in part (c)(i). Based on the loanable stock market analysis what will happen to each of the following (i) The price of previously issued bonds. Explain. (ii) Capital stock Explain
Question 13 Include correctly labeled diagrams, if useful or required, In explaining your answers. A correctly labeled dl question prompts you to 'Calculate," you must show how you arrived at your final answer.
Vander's economy is in short-run equilibrium with an inflationary gap of $360 billion, and the marginal propensity to save 0.1. the expected inflation rate is 2% and the natural rate of
(b) Assume the government takes no policy action with regard to the state of Vander's economy.
(i) What will happen to the actual rate of unemployment in the long run? Explain.
(it) The flow will the long-run adjustment process be represented in the Phillips curve model? Explain.
(c) Assume that instead of waiting for the long-run adjustment, the government of Vander is considering USA fiscal policy to addresses the inflationary gap of 360 billion
(ii) How will the effect of the government's action in part (c)(i) be represented in the Phillips curve model
(Ili) If the government chooses to increase income taxes instead of decreasing its spending, calculate the maximum change in income taxes required to the inflationary gap? Show your work.
(iv) Now suppose instead that the government wants to maintain a balanced budget and decreases both g make the output gap larger, or have no effect on the output gap? Explain.
(d) Suppose the government chose to implement only the policy described in part (c)(i). Based on the loanable stock market analysis what will happen to each of the following
(i) The price of previously issued bonds. Explain.
(ii) Capital stock Explain
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