Refer to the diagram that shows an AD/AS model for a hypothetical economy. Suppose the economy is in a short-run equilibrium at Y₁. An appropriate fiscal policy for attaining potential output (Y") is a(n) O A. decrease in current imports. O B. increase in personal and corporate taxes. OC. decrease in current consumption. OD. increase in exports. A B M₁ Real GDP AS AD oƠÙ

Refer to the diagram that shows an AD/AS model for a hypothetical economy. Suppose the economy is in a short-run equilibrium at Y₁. An appropriate fiscal policy for attaining potential output (Y") is a(n) O A. decrease in current imports. O B. increase in personal and corporate taxes. OC. decrease in current consumption. OD. increase in exports. A B M₁ Real GDP AS AD oƠÙ

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 2TY

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You are hired by the Council of Economic Advisors (CEA) as an economic consultant.The chairperson of the CEA tells you that she believes the current unemployment rate istoo high. The unemployment rate can be reduced if aggregate output increases. She wantsto know what policy to pursue to increase aggregate output by 300 billion TL. The bestestimate she has for the MPC is 0.8. Which of the following policies should yourecommend?a) Increase government purchases by 75 billion TL.b) Reduce taxes by 75 billion TL.c) Reduce taxes by 75 billion TL and to increase government purchases by 75 billion TL.d) Reduce the budget deficit by 300 billion TL
Consider the basic AD/AS macro model. A rise in an input price like the price of oil would be expected to cause a new macroeconomic equilibrium in which the price level Select one: O a. is lower and real GDP higher than in the initial equilibrium. O b. and real GDP are higher than in the initial equilibrium. O c. is higher and real GDP remained the same as in the initial equilibrium. O d. is higher and real GDP lower than in the initial equilibrium. O e. and real GDP are lower than in the initial equilibrium.
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Which of the following statements is true? O If aggregate expenditures exceed real GDP, the economy will expand, causing production of goods and services to increase and unplanned inventories to rise. O Once macroeconomic equilibrium has been established in an economy, there is no tendency for real GDP to change, even if there is change in autonomous expenditure. O A horizontal aggregate supply curve indicates that equilibrium real GDP is determined by aggregate supply. O If the actual unemployment rate is 8 percent, and the natural rate of unemployment is 6 percent, then the economy is producing a level of Real GDP that is lėss than the level of potential Real GDP.
. Suppose the United States economy is repre- sented by the following equations: Z = C + I + G, C = 500 + 0.75YD, T = 600, I = 300, YD = Y − T , G = 2000 Given the above variables, calculate the equilibrium level of output. assume that government spending decreases from 2000 to 1900. What is the new equilibrium level of output? How much does income change as a result of this event? What is the multiplier for this economy?
For this question, you should draw the AS/AD diagram on your own paper, and use your diagram to find the answer. What happens to GDP deflator and real GDP if there is an increase in government spending? You may assume the increase in government buying does not cause a decrease in buying by anyone else. O GDP deflator rises and real GDP falls. O GDP deflator and real GDP both rise. O GDP deflator and real GDP both fall. O GDP deflator falls and real GDP rises.
"The following chart indicates the aggregate demand (AD) and short-run aggregate supply (SRAS) schedules of decision- makers for the current period. Both buyers and sellers previ- ously anticipated that the price level during the current period would be P 105 a. Indicate the quantity of GDP that will be produced during this period. b. Will it be a long-run equilibrium level of GDP? Why or why not? c. What will the relationship between the actual and natural rates of unemployment be during the period? Explain 20 your answer.
Suppose the current equilibrium GDP is less than potential GDP. Which of the following actions could the government take to close the output gap? Select one or more: O a. No action is necessary O b. Decrease expenditures C. Decreases taxes Od. Increase taxes O e. Increase expenditures
Consider the basic AD/AS macro model in long-run equilibrium that experiences a positive AD shock. In the short run, the price level and output In the long run, the price level and output O a. Decreases; decreases; decreases further; decreases further. O b. Decreases; decreases; decreases further; returns to potential output. O c. Increases; increases; increases further; increases further. O d. Increases; decreases; increases further; returns to potential output. O e. Increases; increases; increases further; returns to potential output.
What could cause the following shift? O Increase in GDP. O Expansionary fiscal policy. O Decrease in future MPK. All of the above. FE IS LM
'Finance minister announces that the federal income-tax rate will rise by three percentage points." Assuming that aggregate output is demand-determined, the AE function will and equilibrium national income will O a. Become flatter; fall. O b. Shift up parallel to itself; rise. Ос. Весome steeper, rise. O d. Shift down parallel to itself; fall. O e. Not change; not change.
Still with the same data on Macroland, a closed economy with no government sector, and with fixed price level and interest rate. Fill-in the blank in the following table, then answer the following question. GDP Yd Iplanned lunplanned 20 22 30 50 30 80 30 100 70 30 The Macroland's government reduced its taxes by 20, the income- expenditure equilibrium is expected to be: O 50 O 80 O 100 O 150