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

See similar textbooks

Similar questions

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.
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.
An economy is at full employment. Which of the following can create an inflationary gap. Group of answer choices An increase in nominal wages. An increase in income taxes. An increase in government spending. A decrease in government spending.
The Recovery: Utilizing the Aggregate Demand/Aggregate Supply framework describe what has happened during the recovery from the recession from May 2020 (Q2 2020) to the present March 2022 has happened to real GDP since the end of the recession in Q2 of 2020? How about inflation and unemployment? How big is the gap between actual and potential real GDP? Describe the current state of the economy relative to real potential GDP (Links to an external site.).
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…
Discuss how the economy returns to equilibrium in response to changes in aggregate demand (AD) and aggregate supply (AS) in both the short run and long run
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.
FILL IN THE BLANKS Inflation measures the changes in the level of in the economy. Demand-pull inflation is caused by a shift in the aggregate demand curve, while cost-push inflation is caused by a shift of the aggregate supply curve. When the price level is increasing by an extremely high rate, the economy is said to be experiencing . Stagflation occurs when the economy is experiencing high inflation, high unemployment, and low at the same time. To combat inflation, the government can use contractionary monetary policy which will also lead to interest rates. Note, however, that there is a short-run tradeoff between inflation and as illustrated by the Philips Curve. Inflation is stable when the unemployment rate is equal to the rate of unemployment.
According to the classical economists, the supply curve is vertical at the level of potential GDP. What happens to the level of real output and price no matter where the demand curve is drawn?
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
Use an aggregate demand (AD) and aggregate supply (AS) model to respond to the following questions. Explain your answers.(c) Describe a government policy that is likely to cause non-inflationary and sustained growth. (d) Good weather creates a bumper crop in Saskatchewan. How does this affect inflation and GDP in the short-run?
The graph above refers to a significant increase in individual income taxes, taking them to their highest level in 50 years. Which of the following is likely to result? a) macroeconomic supply will decrease in the short run b) the economy will experience lower economic growth c) inflationary pressures will be mild d) cyclical unemployment will decrease

SEE MORE QUESTIONS

Recommended textbooks for you

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

ENGR.ECONOMIC ANALYSIS

Economics

ISBN:

9780190931919

Author:

NEWNAN

Publisher:

Oxford University Press

Principles of Economics (12th Edition)

Economics

ISBN:

9780134078779

Author:

Karl E. Case, Ray C. Fair, Sharon E. Oster

Publisher:

PEARSON

Engineering Economy (17th Edition)

Economics

ISBN:

9780134870069

Author:

William G. Sullivan, Elin M. Wicks, C. Patrick Koelling

Publisher:

PEARSON

Principles of Economics (MindTap Course List)

Economics

ISBN:

9781305585126

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Managerial Economics: A Problem Solving Approach

Economics

ISBN:

9781337106665

Author:

Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:

Cengage Learning

Managerial Economics & Business Strategy (Mcgraw-…

Economics

ISBN:

9781259290619

Author:

Michael Baye, Jeff Prince

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS