Suppose the economy begins with output equal to its natural level. Then, there is a reduction in income taxes. a. Using the AS–AD model, show the effects of a reduction in income taxes on the position of the AD, AS, IS and LM curves in the short and long run. b. What happens to output, the interest rate, and the price level in the long run? What happens to consumption and investment in the short and long run?
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Suppose the economy begins with output equal to its natural level. Then, there is a reduction in income taxes.
a. Using the AS–AD model, show the effects of a reduction in income taxes on the position of the AD, AS, IS and LM curves in the short and long run.
b. What happens to output, the interest rate, and the price level in the long run? What happens to consumption and investment in the short and long run?
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- Use the AD-AS model diagram to address the effects of increasing government expenditure in the short-run and in the long-run equilibrium.Depict in the AD-AS model, an economy exhibiting a short run equilibrium with a negative output gap resulting from a decline in AD caused by falling investment spending. What is true about the level of unemployment in this circumstance? What is true about the utilization of capital in this circumstance? What are the implications of your statements in parts a and b for long run adjustments in resource prices? How will these changes in resource prices impact the economy in the long run? Depict this change in your graph.Consider the following changes in the macroeconomy and show how to think about them using the IS curve. Explain how and why GDP is affected in the short run (assuming the real interest rate is constant). The government offers a temporary investment tax credit: for each dollar of investment that firms undertake, they receive a credit that reduces the taxes they pay on corporate income. A booming economy in Europe this year leads to an unexpected increase in demand by European consumers for US goods. US consumers suddenly love all things made in Brazil and sharply increase their imports from that country. A housing bubble bursts so that housing prices fall by 20% and new home sales drop sharply.
- Refer to the figure below. Price Level LRAS " SRAS, AD SRAS, ADI Quantity of Output Suppose the economy starts at P₁ and Y₂. If there's a substantial investment tax credit offered by the government, what happens to the economy in the short run AND in the long run if the government does nothing. Use the AS-AD model to explain.Suppose firms are optimistic about the outlook of the economy and they decide to increase investment. Also suppose that, simultaneously, there is a reduction in business taxes. Use the AD-AS graph to show what happens to the price level and output as a result.Hello Can you help me out. Use the AD/AS model to illustrate the following. Draw 6 graphs by hand. Show how the AD or the AS curve shift and in what direction (left or right). Also state what happens to equilibrium real GDP (Y), employment, and the equilibrium price level. [Note: Use the SRAS curve, not the LRAS.] A. an increase in government spending and/or transfer payments B. restrictive fiscal policy C. expansive monetary policy D. increase in investment according to Keynesians E. increase in investment according to supply-side economists F. a stock market crash
- Use the AD-AS model in the figure below to answer the following questions. Price level LRAS AS * AD, AD₂ AD₁ Real GDP Suppose this economy is operating at point B, if there is an increase in the price of inputs, then in the short and in the long run. . . . run a) real GDP falls and the price level rises; real GDP is below its original level with a higher price level b) real GDP rises and the price level falls; real GDP and the price level return to their original levels c) real GDP and the price level both rise; real GDP is above its original level with a higher price level d) real GDP falls and the price level rises; real GDP is at its original level as a result of the factor price adjustment process e) real GDP and the price level both rise; real GDP returns to its original level with a higher price levelGraphically show the likely short-run impact on US real GDP and aggregate price level using the AD/AS model. Explain your prediction. Which curve in the AD/AS model would a change in US consumer consumption affect? Note:- Please avoid using ChatGPT and refrain from providing handwritten solutions; otherwise, I will definitely give a downvote. Also, be mindful of plagiarism. Answer completely and accurate answer. Rest assured, you will receive an upvote if the answer is accurate.Q27. Suppose the U.S. Congress passes significant immigration reform that makes it easier for foreigners to come to the United States to work. Use the AD/AS model to explain how this would affect the equilibrium level of GDP and the price level. A. Immigration reform as described should increase Aggregate Demand, shifting AD to the left, leading to a higher equilibrium GDP and a lower price level. B. Immigration reform as described should increase the labor supply, shifting AS to the right, leading to a higher equilibrium GDP and a lower price level. C. Immigration reform as described should increase the labor supply, shifting AS to the right, leading to a lower equilibrium GDP and higher price level.
- Imagine that in the year 2035, Japan’s economy shrinks significantly, causing a decrease in investment in the U.S. economy. Use the ADAS model to explain the likely short run impacts on U.S. GDP and the aggregate price level. What do you anticipate to happen to U.S. consumption expenditures and U.S. employment? Explain your reasoning for each of your predictions and show graphically as appropriate. Students may utilize Paint, Word (the shapes tool under Insert), OneNote (Draw tab), or hand draw the graphs.The graph below shows the AD-AS diagram for Spain. Suppose that the economy is initially in long-run equilibrium with the price level of 900. Now suppose that the Aggregate Demand (AD) curve shifts left from AD1 (blue) to AD2 (green). 1200 AD 1100 1000 Price Level ADS 900- 800 79R ST 600* 500 400 300 200- 100- LRAS 100 200 300 400 500 600 700 800 900 1000 1100 120 Real GDP Q 1. What is the new GDP in the short-run as a result of this shift? I 2. What is the new price level in the short-run as a result of this shift? 3. What is the price new long-run equilibrium as a result of this shift? 4. What is GDP in the new long-run equilibrium as a result of this shift? 5. What causes the economy to move from the short-run equilibrium to the new long-run equilibrium? O Decreased wages. O increased wages. O Increased prices. O Decreased prices.Question 24 Consider a standard AD-AS model. If the marginal propensity to consume is zero, a temporary tax cut leads to a small increase in inflation and a large decrease in unemployment in the short run. Answer True or False. Remember to include your explanation.