Macroeconomics (MindTap Course List)
10th Edition
ISBN: 9781285859477
Author: William Boyes, Michael Melvin
Publisher: Cengage Learning
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Chapter 10, Problem 5E
To determine
Draw a graph representing a hypothetical economy in a recession. Label the two axis, the 45 degree line, the AE curve, and the equilibrium level of the real GDP. Indicate and label the GDP gap and the recessionary gap
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Students have asked these similar questions
Which of the following components of consumption spending typically sees the largest decline in demand during a recession?
automobiles
food
clothing
housing
Suppose that exports increase by $300 billion, given an MPC of.75. Calculate the
change in GDP. Give your answer in billions and leave off the dollar sign. Be sure to
include a negative sign if appropriate.
Keynesian Cross
Suppose Y = C+ I + G
C = 900 +.75(Y)
I = 300
G = 400
a. Calculate the equilibrium GDP.
Chapter 10 Solutions
Macroeconomics (MindTap Course List)
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- Research on the effects of recessions on the real level of GDP shows that recessions cause only temporary reductions in real GDP, which are offset by growth during the expansion phase. recessions cause large, permanent reductions in the real level of GDP. recessions cause both temporary and permanent declines in real GDP, but most of the decline is temporary. recessions cause both temporary and permanent declines in real GDP, but most of the decline is permanent.arrow_forward120- 115- 110- 105- 100- 95- 90- 85+ Price level 1.1 S LAS D B SAS₁ ch SASO AD ADO 1.2 1.3 1.4 1.5 1.6 Real GDP (trillions of 2007 dollars) 1.7arrow_forwardThe total expenditure in Macroland begins with these initial levels (in trillions of dollars): autonomous consumption=1, Investment = 2; Net Exports = 0, T=2, and MPC = 0.75. Assume that equilibrium has been achieved. Suddenly there is an external shock and as a result investment goes down to 1. What is the change in GDP? Use the base model to answer this question. Equilibrium GDP goes down by 1 Equilibrium GDP goes up by 1 Equilibrium GDP goes up by 4 Equilibrium GDP goes down by 4arrow_forward
- Write out and explain the GDP and Aggregate Expenditure identity equations.arrow_forwardAnswer the following questions, which relate to the aggregate expenditures model: a. If C is £100, I is £50, NX is £-10, and G is £30, what is the economy's equilibrium GDP? Suppose that full-employment (and full-capacity) output in the economy in (a) is £150. Explain the type of gap in this economy and the reasons behind this gap. Clarify the government policies to close this gap.arrow_forwardSuppose the Canadian economy is currently at point K as shown in the diagram above. Explain briefly two events that could cause it to move to point N.arrow_forward
- The country is experiencing a serious rise in inflation which the government wants to control through fiscal policy. The Government will decrease spending by $20 million and increase taxes by $15 million. The marginal propensity to consume (MPC) is 0.80. What will be the effect on GDP and by how much?arrow_forwardSuppose an economy is operating at point A on the graph showing aggregate demand. A decrease in the aggregate price level causes the economy to move to point B On the graph showing aggregate expenditures (AE), show the change caused by the movement from point A to point B on the aggregate demand curve. Aggregate price level Aggregate demand Aggregate output Aggregate expenditures Income (Y) Y-AE AEarrow_forwardDuring a recession: potential GDP declines potential GDP increases real GDP declines O real GDP increasesarrow_forward
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