While the economy is at potential output, the government increases spending. The following tabledescribes the aggregate demand curves before and after an increase in government spending, wherereal GDP is expressed as the percent deviation from potential GDP and inflation is expressed as apercentage:Real GDP (Before)2.01.00.0-1.0-2.0Real GDP (After)4.03.02.01.00.0In the long run, what is the inflation rate after the increase in government spending?Inflation3.04.05.07.09.0

1. **Initial Conditions**: Before the increase in government spending, the economy is at potential…

Answered: While the economy is at potential…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose the people of Canada has reduced their spending on goods and services from the United States. What will be the effect on real GDP and the price level in the short run? In the long run? Show your results graphically.
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Economists forecast future economic conditions by studying variables that tend to fluctuate in advance of the overall economy. The most significant of these variables are known as leading indicators, and they compose the index of leading economic indicators. Which of the following variables are measured as part of this index? Check all that apply. Supplier deliveries The ratio of elderly to nonelderly workers New orders for consumer goods Stock prices The money supply True or False: Businesses and government care only about long-run economic forecasts, because they cannot adapt policy or output to accommodate short-run fluctuations. False True Suppose the most recent data show that the average initial weekly claims for unemployment insurance have recently decreased. This change suggests ____ period in the coming months.
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Should the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy, as well as the pros and cons of using these tools to combat economic fluctuations. The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves for the U.S. economy in May 2026. Suppose the government chooses to intervene in order to return the economy to the natural level of output by using policy. Depending on which curve is affected by the government policy, shift either the AS curve or the AD curve to reflect the change that would successfully restore the natural level of output. PRICE LEVEL 150 50 30 130 110 8 70 80 50 20 20 22 24 LRAS 28 AS OUTPUT (Trillions of dollars) AD 28 30 AD ਵੇ ㅁ AS ? Suppose that in May 2026 the government successfully carries out the type of policy necessary to restore the natural level of…
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Suppose the US Federal Government decides to increase its spending without issuing debt by raising additional taxes (i.e., tax-financed government spending). Which of the following statements describes how tax-financed government spending affects the price level over the short run and the long run? The price level remains unchanged over the short run and the long run. The price level increases above it's initial level in short run and further increases over the long run. The price level decreases below it's initial level in the short run and further decreases over the long run. The price level decreases below its initial level in the short-run but increases above its initial level over the long run.
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Sally, a resident of Scandia, goes to a salon for a haircut. The haircut, which usually costs $50, now costs $40. Sally is confused and curious to understand why she could get the haircut at a lower price despite the salon not offering any discounts. She also notices that the prices of all goods and services in Scandia have decreased. Which situation is occurring in the economy?Inflation Disinflation Deflation Stagflation

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