Answered: the existing recessionary gap. If the…

the existing recessionary gap. If the central bank does not change the interest rate, p. will adjust and bring the economy back to

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter8: Aggregate Demand And The Powerful Consumer

Section: Chapter Questions

Problem 8DQ

See similar textbooks

Related questions

Q: What is the difference between a recession and a depression? A. A depression is the opposite of a…

A: Business cycle refers to the fluctuations in economic activity. It includes expansion and recession.…

Q: For this economy to produce Y1 and sustain it without inflation a) the price of oil must increase.…

A: The long run market equilibrium level is one where the aggregate demand (AD), short run aggregate…

Q: How does this very short-term nominal interest rate, used only betweenbanks, have the power to shake…

A: The federal funds rate is the interest rate at which commercial banks lend reserve balances to each…

Q: If the economy is self-regulating as Classical theory assumes,and it is in a recessionary gap, then…

A: As per Classical theory, wages and prices adjust to economic shocks, so they economy always returns…

Q: why increasing government expenditure causes interest rate to rise?

A: Government expenditure is the expenditure by the government to the national economy. Example of the…

Q: If leakages are greater than injections into the economy then: a. The economy will grow b. The…

A: The equilibrium is established where the aggregate demand and aggregate supply are equal. An…

Q: According to the Keynesian framework, ____________ in _______________ may cause inflation, but not a…

A: Inflation usually means rise in prices and and recession is such a period where less demand are seen…

Q: According to Keynes, when the price level rises, it causes the interest rate to do what? It causes…

A: Money Demand: - The demand for money is the individual's desire to keep their assets in the form of…

Q: What is generally true of consumers in a recession? a. The rich suffer as the poor cut back on…

A: A recession refers to an economic downturn described by a critical and sustained decrease in…

Q: A reduction in personal income taxes increases Aggregate Demand through a. an increase in private…

A: Aggregate demand is the economic concept that helps in understanding the quantity demanded by all…

Q: In which year was water the most expensive in real terms? Show work. What was the real wage for…

A: We need to calculate real value of water in each year to determine in which year it is most…

Q: In the basic New Keynesian model, if the central bank is initially achieving its goals, and the…

A: The natural rate of interest assists the economy at full employment while keeping inflation same.

Q: On a diagram, demonstrate the effects of (a) a fall in investment and (b) a fall in the money…

A: Public expenditure refers to that component of aggregate demand which is influenced by the…

Q: Other things the same, the aggregate quantity of goods demanded decreases if a. real wealth…

A: Aggregate demand is given as AD= C+I+G+NX Where C is consumption I is investments G is government…

Q: Part 1) Can you Explain how an economy’s income must always equal its expenditure with simple…

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: In the United States, nominal interest rates tend to move economy is experiencing, nominal interest…

A: Nominal interest rate refers to the rate of interest before considering the inflation into account,…

Q: 2. In 2016 Obama's administration presented a new budget plan. It proposed an increase in BCA cap…

A: Consider that during the early piece of 2020, the US economy entered a downturn because of the…

Q: Within the IS-LM curve model, if the government cut taxes at the same time that there was an…

A: In the IS-LM model, IS curve explains the situation of the goods or product market, while LM curve…

Q: The determinants of equilibrium interest rate in the classical model area. A monetary phenomenon…

A: Classical model believes that economy always operates in the full employment level. The market…

Q: What is the level of consumption and investment? Do consumption, investment and government…

A: The goods market equilibrium is at the point where the Y that is income is equal to the sum of…

Q: When the economy goes into a recession. real GOP---- and unemployment ___ .a. rises, risesb. rises,…

A: A recession refers to a period of economic contraction during which companies experience weaker…

Q: Briefly state the Keynesian theory.

A: Demand is the total quantity of commodities for which the consumers are ready to pay different…

Q: The housing market has weakened during every recession except which of the following? a. The…

A: We have to find The housing market has weakened during every recession except which of the…

Q: Which of the following is true? Question 37Answer a. The loanable funds model is essentially a model…

A: The two main models of the rate of interest are the loanable funds model and the money market model.…

Q: Assuming that nominal interest rates stay the same, an decrease in the rate of inflation would raise…

A: Nominal interest rate includes the effect of inflation. Real interest rate is the inflation…

Q: Scenario FRQ In 2019 the federal government decreased interest rates for banks three times. Shortly…

A: A. Decline in interest rates mean less towards savings and more towards consumption spending. Hence,…

Q: Use the closed classical economy to analyze the effects of an increase in government purchases on…

A: A closed economy is one where all the economic activities take placd within the geographical…

Q: When stagflation began to appear in the US economy in the late 1960s, economists and policymakers…

A: Answer - In the late 1960 s was the time where many incident occur simultaneously which affect…

Q: There is a danger that some countries will experience stagflation. Use a graph(s), define and…

A: Disclaimer- “Since you have asked multiple question, we will solve the first question for you as per…

Q: Find an article that explains “Stagflation of the 1970’s in The United States”. Summarize the…

A: In the article “Economic Stagflation in a Historical Context” by Mike Moffatt, stagflation is…

Q: According to classical macroeconomic theory, a. the price level is sticky in the short run and it…

A: Macroeconomic is an economic theory that depicts the aggregates of the economy. it studies the…

Q: 16. To be a Keynesian means that you believe in two principles. What are those two principles? a. b.

A: Keynesian economics is a theory of total spending or total expenditure in the economy and its…

Q: 12. If _____ is rising, it likely means that the economy is shrinking. A. consumer spending B.…

A: GDP is the value of final goods and services produced in the economy within a given period of time

Q: Explain the difference between Keynesian economics and Classical economics by mentioning the…

A: Note: Since you have posted multiple independent questions in the same request, we will solve the…

Q: Is an increase in real interest rate always proportional to an increase in the growth rate of money…

A: The real interest rate is the nominal interest rate (the rate quoted by financial institutions)…

Question

Suppose the price of crude oil increases and we produce just enough crude oil for our own consumption. Increasing the interest rate will
the existing recessionary gap. If the central bank does not change the interest rate,
will adjust and bring the economy back to
Yp.
Worsen; wages
O b. Improve; wages
O c. Improve; tax rates
O d. Worsen; tax rates

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

When the macroeconomic equilibrium is such that real GDP is less than potential real GDP, the economy is suffering from and the government policy to eliminate this gap will the price level. real GDP and to A. an inflationary gap; increase; decrease a recessionary gap; decrease; decrease OC. a recessionary gap; decrease; increase B. D. an inflationary gap; decrease; increase OE. a recessionary gap; increase; increase
f. Technological improvements increase productivity. gram to illustrate and explain how each of the following will affect the equilibrium price level and real GDP: a. Consumers expect a recession. b. Foreign income rises. c. Foreign price levels fall. d. Government spending increases. e. Workers expect higher future inflation and negotiate Use an aggregate demand and aggregate supply dia- higher wages now. In th
Suppose a market basket of goods and services costs $400 in the base 'year and the consumer price index (CPI) is currently 125. This indicates the price of the market basket of goods is now: $275. $425. $500. $525. Which of the following will most likely occur during the recessionary phase of a business cycle? O Real GDP nises, and the unemployment rate falls O Real GDP declines, and the rate of inflation nises O The sales of most businesses decline, and the unemployment rate nses Inflation rises, and employment population ratio falls
If the price level rises and the money wage rate remains constant, what happens to the quantity of real GDP supplied? How does the economy move? If the price level rises and the money wage rate remains constant, the quantity of real GDP supplied _______ and there is a movement up along the _______. A. increases; aggregate supply curve B. increases; potential GDP line C. does not change; aggregate supply curve D. does not change; potential GDP line
If the price level rises and the money wage rate remains constant, what happens to the quantity of real GDP supplied? How does the economy move? If the price level rises and the money wage rate remains constant, the quantity of real GDP supplied _______ and there is a movement up along the _______. A. increases; aggregate supply curve B. increases; potential GDP line C. does not change; aggregate supply curve D. does not change; potential GDP line Thanks!!
R T 3. Price level B K SAS 1 SASO Real output C. an increase in aggregate demand. D. a decrease in aggregate demand. IUO Refer to the graph shown. A movement from A to C is most likely to be caused by: A. an increase in input prices. B. a decrease in input prices. NG
If the price level and the money wage rate rise by the same percentage, what happens to the quantity of real GDP supplied? How does the economy move? If the price level and the money wage rate rise by the same percentage, the quantity of real GDP supplied _______ and there is a movement up along the _______. A. does not change; potential GDP line B. increases; aggregate supply curve C. decreases; potential GDP line D. does not change; aggregate supply curve
If the price level and the money wage rate rise by the same percentage, what happens to the quantity of real GDP supplied? How does the economy move? If the price level and the money wage rate rise by the same percentage, the quantity of real GDP supplied _______ and there is a movement up along the _______. A. does not change; potential GDP line B. increases; aggregate supply curve C. decreases; potential GDP line D. does not change; aggregate supply curve Thanks!
Describe three types of short-run macroeconomic equilibrium. A macroeconomic equilibrium in which real GDP equals potential GDP is And one in which real GDP exceeds potential GDP is equilibrium. A. a full-employment; an above full-employment OB. an above full-employment; a full-employment OC. an above full-employment; an inflationary OD. a full-employment; a recessionary equilibrium. The graph shows an economy's long-run aggregate supply curve. The economy is at a below full-employment equilibrium Draw an aggregate demand curve and a short-run aggregate supply curve. Label them. Draw a point at the short-run equilibrium. 150 140- 130- 120- 110- 100 90+ Price level (GDP deflator, 2007=100) 1.5 LAS 2.1 Q Q 1.8 1.9 2.0 1.6 1.7 Real GDP (trillions of 2007 dollars) >>> Draw only the objects specified in the question.
When the economy goes into a recession, realGDP _________ and unemployment _________.a. rises; risesb. rises; fallsc. falls; risesd. falls; falls
An increase in taxes when the economy is above full employment OA. increases; falls B. increases; rises O C. does not change; does not change O D. decreases; falls aggregate demand and real GDP, and the price level
When the economy goes into a recession. real GOP---- and unemployment ___ .a. rises, risesb. rises, fallsc falls. risesd. falls, falls