Using the AE model, show the economy in equilibrium. Then, show the impact of an increase in government spending to reduce the unemployment rate. Would the above be considered expansionary or contractionary fiscal policy? Assume the change in government spending in above is $25 billion dollars and MPC = .95. What will be the change in GDP?

Using the AE model, show the economy in equilibrium. Then, show the impact of an increase in government spending to reduce the unemployment rate. Would the above be considered expansionary or contractionary fiscal policy? Assume the change in government spending in above is $25 billion dollars and MPC = .95. What will be the change in GDP?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

ChapterA: The Use Of Mathematics In Principles Of Economics

Section: Chapter Questions

Problem 3RQ: Exercise A3 What dome slices of a pie chart represent?

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Question

Using the AE model, show the economy in equilibrium. Then, show the impact of an increase in government spending to reduce the unemployment rate.

Would the above be considered expansionary or contractionary fiscal policy?

Assume the change in government spending in above is $25 billion dollars and MPC = .95. What will be the change in GDP?

Planned
Aggregate
Expenditure
Y
PAE
C + I + G
Equilibrium
Output

Definition Definition State in which an individual is without work, despite actively seeking employment opportunities. The unemployment rate refers to the percentage of the workforce that is currently unemployed. Unemployment is one of the key indicators of the conditions prevailing in an economy. It is therefore considered a barometer that points out the condition of an economy.

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