Question 6 Demand management can be used by both fiscal and monetary policy. Suppose that fiscal policy makers decide to employ an expansionary policy in the aim to stimulate a weak economy. 6.1. Explain how fiscal policy can use both policy instruments at their disposal to stimulate an economy. 6.2. Based on your answer (6.1), illustrate, and explain by aid of the AD-AS model what the identified policy employment by Fiscal Authorities will have on the general price level and the level of real production and income in the economy. 6.3. Illustrate and explain by aid of the Phillips curve, how demand-pull inflation impacts the relationship between unemployment and the inflation rate. [Tip: Include arrows to illustrate the correct direction of all movements and changes in your illustration].

Question 6 Demand management can be used by both fiscal and monetary policy. Suppose that fiscal policy makers decide to employ an expansionary policy in the aim to stimulate a weak economy. 6.1. Explain how fiscal policy can use both policy instruments at their disposal to stimulate an economy. 6.2. Based on your answer (6.1), illustrate, and explain by aid of the AD-AS model what the identified policy employment by Fiscal Authorities will have on the general price level and the level of real production and income in the economy. 6.3. Illustrate and explain by aid of the Phillips curve, how demand-pull inflation impacts the relationship between unemployment and the inflation rate. [Tip: Include arrows to illustrate the correct direction of all movements and changes in your illustration].

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Aggregate price LRAS level SRAS, AD2 AD AD Yp Y2 Real GDP Reference: Ref 13-9 (Figure: AD-AS) Consider an economy that is producing an output level of Y. This economy is in: a) an inflationary gap, which can be closed by expansionary fiscal policy. b) a recessionary gap, which can be closed by contractionary fiscal policy. c) an inflationary gap, which can be closed by contractionary fiscal policy. d) a recessionary gap, which can be closed by expansionary fiscal policy.
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Explain your decision making regarding government expenditure and how it changed based on the macroeconomic conditions. What was the intent of your fiscal policy decisions in response to the given economic climate? Evaluate your fiscal policy decisions, including how they impacted key macroeconomics factors such as real GDP growth and unemployment. To what extent did your policies yield positive or negative outcomes? Refer to the AD/AS model to support your analysis in this section of your report.
Answer the following questions using this table of information: Jun-2021 Sep-2021 Dec-2021 Price Index 118.8 119.7 121.3 Real GDP ($b) 20.7 20.3 21.0 Potential GDP ($b) 20.7 20.7 20.7 Draw the AD-AS model with a vertical long-run AS and upward-sloping short-run AS. Assume the economy is in long-run equilibrium Part 2 On the same diagram show a short-run supply shock that depicts the Australian economy in a short-run equilibrium in September 2021.
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
During the current economic crisis caused by COVID 19, the Australian authorities have used both monetary and fiscal policy to try and minimise unemployment. (a) Use the dynamic AD-AS model to describe the impact of the crisis on the economy. Be sure to comment on its effect on both the demand and supply side in your answer. b) Using the same model, discuss and show in a diagram how the correct fiscal policy may offset the impact of the COVID effects on the economy. Be sure to mention any practical issues that may modify your answer
QUESTION 1 Consider the aggregate supply-aggregate demand (AD-AS) model that we saw in class. Assume that prices are fixed in the short run and are fully flexible in the long run. The initial full-employment level of output is Y=900 and the initial price level is P=100: The aggregate demand curve is given by Y= 1500 - 6P: Scenario 1, short run: A reduction in personal income taxes shifts the demand curve to Y=1530 - 6P. In the short run, the output is and the price level is Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard may automatically delete it and you should not do anything about it. In case of percentages, do not type in the percentage symbol "%".
Suppose that in 2011, Quarterville’s government cuts taxes. Show how this event will change equilibrium output and price level by shifting either the SRAS or AD curve.
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Based on research conducted by the Department of Economic Analysis, the government and policy advisors of an economy believe that the full employment GDP is $7500 billion, and Pe, the overall expected price level is 118. In addition, the researchers estimate that the short run aggregate supply equation is Y = Ypot + 80 (P - Pe), where Ypot is the potential level of output. In 2016, the population was 400 million, and the structure of the economy was described by the following equations for household consumption behavior and taxes received: C = 100+ 0.8DI, and T = 0.25Y where all monetary values are in billions of dollars. Government spending was fixed at $1700 billion, and firm's investment behavior was fixed at $800 billion. Trading is allowed in this economy and in 2016, trading occurred such that the trade account was balanced. That is, net exports (X - IM) was equal to zero. (Question 1 of 20) What is the equilibrium level of GDP (in billions of dollars) in 2016? (report your…
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