Use the graph below to answer questions 6 and 7.AggregatepricelevelP₁LRASYE6. a) If the economy is at point E₁, there is a(n)"high" or "low")Y₁AD₁SRASb) What is expected to happen to the economy in the long run?Real GDPgap with (high low) unemployment. (Circle7. If the economy is at point E1, the appropriate fiscal policy in order to stabilize output is to:increase taxes and decrease government spending (thereby decreases AD, shifting AD left).decrease taxes and increase government spending (thereby increasing AD, shifting AD right).A)B)

The inflationary gap defines the difference between the real GDP and the GDP of the economy at its…

Use the graph below to answer questions 6 and 7. Aggregate price level LRAS YF 6. a) If the economy is at point Et, there is a(n) "high" or "low") Y, AD₁ SRAS b) What is expected to happen to the economy in the long run? gap Real GDP with (high low) unemployment. (Cir 7. If the economy is at point E1, the appropriate fiscal policy in order to stabilize output is to: increase taxes and decrease government spending (thereby decreases AD, shifting AD left). decrease taxes and increase government spending (thereby increasing AD, shifting AD right). A) B)

Use the graph below to answer questions 6 and 7. Aggregate price level LRAS YF 6. a) If the economy is at point Et, there is a(n) "high" or "low") Y, AD₁ SRAS b) What is expected to happen to the economy in the long run? gap Real GDP with (high low) unemployment. (Cir 7. If the economy is at point E1, the appropriate fiscal policy in order to stabilize output is to: increase taxes and decrease government spending (thereby decreases AD, shifting AD left). decrease taxes and increase government spending (thereby increasing AD, shifting AD right). A) B)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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DIREC TIONS: please complete the practice questions on separate paper by hand. AD/AS can show the economy at three different points: • Negative output gap (recessionary gap) • Full employment output (healthy economy, NRU 4-6%) • Positive output gap (inflationary gap) PRACTICE: 1. Draw AD/AS at full employment output: (this is when LRAS, SRAS and AD are all happy together) 2. Draw AD/AS showing a negative output gap: (this is when output is lower than it would be at full employment 3. Draw AD/AS showing a positive output gap: (this is when output is higher than it would be at full employment) 4. Define stagflation 5. Draw an AD/AS graph showing stagflation. 6. If the government steps in to address a positive or negative output gap and uses fiscal and/or monetary policy, which AD/AS curve will shift and why? 7. If the government takes no policy action to address a positive or negative output gap, which AD/AS curve will shift and why? 8. Explain how fiscal policy can be used to correct a…
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Attached: figure 1: Hayek’s (Classical) AD-AS Model Question 1 Why does Hayek’s aggregate supply curve always lead to an equilibrium level of national output equal to the full-employment level of real GDP? Question 2 Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayek’s idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce? Question 3 Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not?
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