The graph below depicts the aggregate demand and aggregate supply curves for the real economy. We can see that this economy is currently experiencing an output gap. You will identify and quantify that output gap and analyze possible fiscal policy responses: Price Level 350 346 342 338 334 330 LAS SAS AD $22 $24 $25 $28 $30 $32 Real GDP On trillions of dollars) Identify whether the economy is currently experiencing a recessionary or an expansionary gap. Also, identify the size of that output gap. Suppose that the government spending multiplier is 2.0, and that the tax multiplier is -1.5. The government wishes to pursue an equal-sized change in government spending and taxes to eliminate the existing output gap. In your essay, you should identify whether the government should increase or reduce government spending and taxes and by how much. You should also include a graph that depicts this change in government spending and taxes in the figure above. You should clearly identify the new equilibrium level of Real GPD and the new equilibrium price level.

The graph below depicts the aggregate demand and aggregate supply curves for the real economy. We can see that this economy is currently experiencing an output gap. You will identify and quantify that output gap and analyze possible fiscal policy responses: Price Level 350 346 342 338 334 330 LAS SAS AD $22 $24 $25 $28 $30 $32 Real GDP On trillions of dollars) Identify whether the economy is currently experiencing a recessionary or an expansionary gap. Also, identify the size of that output gap. Suppose that the government spending multiplier is 2.0, and that the tax multiplier is -1.5. The government wishes to pursue an equal-sized change in government spending and taxes to eliminate the existing output gap. In your essay, you should identify whether the government should increase or reduce government spending and taxes and by how much. You should also include a graph that depicts this change in government spending and taxes in the figure above. You should clearly identify the new equilibrium level of Real GPD and the new equilibrium price level.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Fiscal Policy: Recessionary vs Expansionary Policy Complete the following exercises. 1. Describe a policy measure the government can use to close a recessionary gap. 2. Illustrate your response to question 1 in a graph. 3. Describe a policy measure the government can use to close an inflationary gap. 4. Please Illustrate Graphically in response to question (question 3: Describe a policy measure the government can use to close an inflationary gap.)
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3. What is fiscal equalization? Give an example
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