Question 4 Fiscal Policy and ADAS (4 points)The following table has data on aggregate demand and short-run aggregate supply.AD (billions)$700SRAS (billions)$100Price Level255060020075500300100400400125300500150200600700175100Graph the aggregate demand and short-run supply curves. Suppose the economy is in long-runequilibrium but policymakers erroneously believe that the full-employment level of GDP is $600billion. What is likely to happen in this economy?

Considering GDP in the horizontal axis and Price Level (PL) in the vertical axis, the graph is…

Question 4 Fiscal Policy and ADAS (4 points) The following table has data on aggregate demand and short-run aggregate supply. TT SRAS (billions) $100 200 Price Level AD (billions) $700 25 50 600 75 100 500 400 300 400 125 300 500 150 175 600 700 200 100 Graph the aggregate demand and short-run supply curves. Suppose the economy is in long-run equilibrium but policymakers erroneously believe that the full-employment level of GDP is $600 billion. What is likely to happen in this economy?

Question 4 Fiscal Policy and ADAS (4 points) The following table has data on aggregate demand and short-run aggregate supply. TT SRAS (billions) $100 200 Price Level AD (billions) $700 25 50 600 75 100 500 400 300 400 125 300 500 150 175 600 700 200 100 Graph the aggregate demand and short-run supply curves. Suppose the economy is in long-run equilibrium but policymakers erroneously believe that the full-employment level of GDP is $600 billion. What is likely to happen in this economy?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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7. Supply-side effects Consider a fictional economy that is operating at its long-run equilibrium. The following graph shows the aggregate demand curve (AD) and short-run aggregate supply curve (SRAS) for the economy. The long-run aggregate supply curve (LRAS) is represented by a vertical line at $6 trillion. The economy is initially producing at potential output. Suppose that fiscal authorities decide to decrease marginal tax rates. Assume that this change in marginal tax rates is perceived as a long-term change. Shift the appropriate curves to illustrate the supply-side view of the fiscal policy effect on output and the price level. (? 120 LRAS SRAS 100 AD 80 SRAS LRAS 40 AD 20 2 4 6 8 10 12 QUANTITY OF OUTPUT (Trillions of dollars) PRICE LEVEL
Suppose that the aggregate demand and aggregate supply schedules for a hypothetical economy are as shown in the following table: Amount of Real GDP Demanded $ 600 $ 700 $ 800 $ 900 $1000 Price Amount of Real GDP Supplied $500 $1200 $400 $1000 $300 $200 $100 $ 800 $ 600 $ 400 a. Use the above data to graph the aggregate supply and aggregate demand curves. b. What are the equilibrium price and equilibrium level of real GDP? C. When this economy reaches its equilibrium GDP in this example, is it also operating at potential GDP? Explain why or why not.
5. Fiscal policy, the money market, and aggregate demand Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they over. The following graph plots the economy's initial aggregate demand curve (AD1). Suppose now that the government increases its purchases by $2.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD₂) after the multiplier effect takes pla Hint: Be sure the new aggregate demand curve (AD2) is parallel to AD₁. You can see the slope of AD₁ by selecting it on the following gra (?) PRICE LEVEL 116 114 112 110 108 106 104 102 100 100 12 AD₁ 10 102 104 106 108 110 112 OUTPUT (Billions of dollars) 114 116 Money Supply Į þ The following graph plots equilibrium in the money market at an interest rate of 6% and a quantity of money equal to $15 billion. AD2 Show the impact of the increase in government purchases on the interest rate by shifting one or…
Which of the following would cause the Aggregate Supply curve to move from AS to AS2 in the graph below? A) A general increase in energy and labor cost for businesses. B) A general decrease in labor cost for businesses. C) An increase in productivity. D) A federal government increase in spending.
Aggregate Supply and Aggregate Demand Real GDP Supplied Price $ 250 $ 500 $ 750 $1000 1500 3000 4500 4500 Real GDP Demanded 5500 5000 4500 4000 a. Plot the aggregate supply and aggregate demand curves on the same graph. b. State the equilibrium real GDP and price level. c. At the equilibrium GDP from part b, is the economy experiencing a recessionar gap? Explain why it is or is not experiencing a recessionary gap. d. State what happens to the nominal wages and the real wage in the short run phase of the aggregate supply.
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1. Write a report to show and explain how Resources price increase will affect the equilibrium price leveland real GDP, use an aggregate demand and aggregate supply diagram: Please use graph/diagram to support your answer. I
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