Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 27, Problem 1.2P
Sub part (a):
To determine
Identify the role of tax cut on the price level and equilibrium GDP.
Sub part (b):
To determine
Identify the role of increasing consumer confidence and business optimism on the price level and equilibrium GDP in an economy.
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Chapter 27 Solutions
Principles of Economics (12th Edition)
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- By using aggregate supply and demand curves to illustrate your points, discuss the impacts of the following events on the price level and on equilibrium GDP (Y) in the short run: a. A tax cut holding government purchases constant with the economy operating at near full capacity b. An increase in the money supply during a period of high unemployment and excess industrial capacity c. An increase in the price of oil caused by a war in the Middle East, assuming that the Central Bank attempts to keep interest rates constant by accommodating inflation d. An increase in taxes and a cut in government spending supported by a cooperative Fed acting to keep output from fallingarrow_forwardThe graphs illustrate an initial equilibrium for the economy. Suppose that the government increases taxes. Use the graphs to show the new positions of aggregate demand (AD), short-run aggregate supply (SRAS), and long-run aggregate supply (LRAS) in both the short run and the long run, as well as the short-run and long-run equilibriums resulting from this change. Then, indicate what happens to the price level and GDP in the short run and in the long run. Aggregate price level Short-run graph LRAS SRAS Short-run equilibrium Real GDP AD Aggregate price level Long-run graph LRAS Long-run equilibrium Real GDP AD SRAS gatearrow_forwardThe following graph shows an aggregate demand curve (AD) illustrating the inverse relationship between the price level and the quantity of Real GDP in the United States. During World War II, the United States increased military spending. Show the effect of the following scenario on the aggregate demand curve by dragging the curve or moving the point to the appropriate position. Note: Tool tip: To move the curve, click and drag any part of the curve. The curve will snap into position, so if you try to move it and it snaps back to its original position, just try again and drag it a little farther. PRICE LEVEL Aggregate Demand I I " I 1 REAL GDP AD AD (?)arrow_forward
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