EBK MACROECONOMICS
10th Edition
ISBN: 9780134896571
Author: CROUSHORE
Publisher: VST
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Chapter 11, Problem 7RQ
To determine
To Explain: The alternative options available for economic policy makers in the event of an economic recession and their advantages and disadvantages.
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- Consider an economy currently in recession. Which is NOT a policy move that could assist the economy, as discussed in class? Raising the money supply Raising government spending Lowering bank reserves Lowering interest ratesarrow_forwardConsider the following two alternative definitions of a recession: 1.A period of negative output growth. 2.A period when the output level is below the country's potential, or normal, level. Now consider a country that has been producing a lot of oil, whose oil wells have suddenly run out. This results in both its potential, and actual, output falling. Which of the following statements are correct? The policymaker using the second definition may underreact to the slowing output. The policymaker using the first definition may underreact to the slowing output. O According to the first definition, the country is now unambiguously in a recession. O According to the second definition, the country is now unambiguously in a recession.arrow_forwardWhy might “belt-tightening” by consumers in a recession be unwelcome?arrow_forward
- Explain the difference between fiscal policy and monetary policy. What are some of the reasons these macroeconomic policies are used? Elaborate on reasons these policies are used.arrow_forwardA severe negative supply shock occurs when there is a significant reduction in the supply of key inputs, such as labor, raw materials, or energy. This can lead to a reduction in output, higher prices, and potentially stagflation (i.e., high inflation and low economic growth). To tackle the effects of a severe negative supply shock, governments and central banks may use various macroeconomic policies. Supply-side policies: Supply-side policies refer to measures aimed at increasing the productive capacity of the economy. In the case of a severe negative supply shock, the government may implement supply-side policies such as tax incentives or subsidies to encourage firms to invest in new technology or production methods. However, these policies may take time to have an impact and may not be sufficient to offset the immediate effects of the supply shock. explain this graphically please.arrow_forwardWhat might be some Keynesian prescriptions to get the economy out of an economic slump (both fiscal and monetary)?arrow_forward
- Use the AS/AD model to determine how each of these events will affect the economy. Determine if the economy is initially to the LEFT, ON, or to the RIGHT of the LARS Type exactly one of these 3 options for credit for each of the letters. A- Initial situation: cyclical unemployment is 4% B initial situation: overutilization of resources C-Initial situation: inflationary gap D-Initial situation: the unemployment rate is equal to the natural rate of unemployment E-Initial situation: a positive GDP GAP F-Initial situation: unemployment rate of 6% (US economy) G-Initial situation: cyclical unemployment is zero. H-Initial situation: a recessionarrow_forwardUsing AD/AS analysis, critically evaluate the problems economic policy makers may face in response to a health pandemic that closes the economy for a period of time. In your answer, use diagrams and focus specifically on the effectiveness of monetary and fiscal policy and comment on the potential long-run implications of the pandemic on the economy. The diagrams used should be your own and not taken from another source.arrow_forwardExplain the role of supply-side policies in the macro-economy. In the context of your analysis distinguish between New Classical and Keynesian approaches to supply side policies. Illustrate your answer with appropriate diagrams.arrow_forward
- In the context of macroeconomic stabilization policies, which scenario best illustrates the concept of "automatic stabilizers"? a) A government increases spending on infrastructure projects during a recession as part of a deliberate fiscal stimulus package. b) During an economic downturn, unemployment benefits automatically increase as more people become unemployed, providing a buffer to the economy. c) The central bank adjusts the interest rates in response to changes in inflation and unemployment data. d) A government adopts a new policy to increase taxes on high-income earners during periods of economic boom.arrow_forwardIn country X, the unemployment rate is 13%, the inflation rate is 16% and the GDP growth rate is 3%. The goal is 5-5-5, i.e., 5% inflation rate, 5% unemployment rate and 5% GDP growth. Assume that you are the Minister of Economics. Do you think you can achieve this goal using a single policy instrument? Why or why not? Which policy or policy mix would you use to achieve the 5-5-5 goal? Please explain the policy or the policy mix, clarify the policy instrument you would use, and discuss how it/they would work to achieve the goalarrow_forwardWhat impact would an increase in the nation's money supply or the federal government's budget deficit have on the real GDP and price level in the macroeconomy? What phase of the business cycle might this create?arrow_forward
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