Suppose that an economy faces a pandemiccrisis. 1. Graph Aggregate demand andAggregate supply I the short run to explainthe effects of GDP and prices. 2. Suppose thatgovernment intervenes to correct theprevious crisis and implement anexpansionary fiscal policy. Show the effect ofthis policy on the previous graph and explainthe changes in Prices and ĠDP

As we know that aggregate demand and aggregate supply curves, of the short-run, are drawn only…

Answered: Suppose that an economy faces a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Why is a $100 billion increase in government spending on goods and services more expansionary than a $100 billion decrease in taxes?
All of the following, except one, would result from expansionary fiscal policy. Which is the exception? Multiple Choice O O O Increased price level. Increased GDP. Decreased budget deficit. Decreased unemployment. 4
1. The following is information for the economy of Texas, where taxes are wholly autonomous: C = 40 + 0.8YD where YD = (Y – T) G = T = 360 I = 120 XN = 107 – 0.1Y a. What is the value of equilibrium income? b. At equilibrium, what is the amount of budget deficit or budget surplus? c. If government increased both its spending and taxes by $60, what would be the new equilibrium income?
The U.S. is in a recession due to decreased Aggregate Demand in the economy. Should the government use Keynesian or Supply Side fiscal policy to counter the contraction? Explain using specific government actions (at least 2). 1 paragraph.
Which of the following best describes a fiscal policy tool? 1. Government spending II. Government taxes III. Interest rates. IV. Bank lending V. Financial capital markets I and II I and VI III, IV, and V
Read the following premise carefully and answer the questions specifically and in detail. "In the face of unstable economic growth due to a recession or accelerated inflation, the potential problems of high public debt include increased income inequality, reduced economic incentives, and crowding out private investment." A. Express in detail the effects of expansionary and contractionary fiscal policy on income and the price level. B. Using the premise presented as a basis, argue about the intervention of fiscal policy as an instrument to promote the growth, sustainability and economic stability of a country. (Gives an example in detail.)
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. 160 Price Level 140 120 100 80 60 40 20 0 Fiscal Policy LRAS AS 80 160 240 320 400 480 560 640 720 800 AD AD₁ Real GDP (billions of dollars) billion Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.75, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? $ Suppose Instead that the MPC is 0.9. C. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.
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