Macroeconomics (Book Only)
12th Edition
ISBN: 9781285738314
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 9, Problem 5QP
To determine
Explain classical economists’ view of increase in saving.
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Use the following scenario for the next two questions. Suppose that the federal government decides to forgive
all current (and future) outstanding student loans (estimated to total around $1.6 trillion as of early 2020). When
thinking about the AD/AS model, which curve would this shift in the short-run, and in which direction?
AD curve, to the left
AD curve, to the right
OSRAS curve only, to the right
OSRAS and AD curves, to the left.
OSRAS and LRAS curves, to the left
Would a shift of AD to the right tend to make the equilibrium quantity and price level higher or lower? What about a shift of AD to the left?
Use the AD - AS model in the figure below to answer the following questions. Suppose the economy is currently experiencing an inflationary gap, without any government policy intervention, the economy would move from ◻ a) C to D b) B to A c) C to B d) A to E e) E to A
Chapter 9 Solutions
Macroeconomics (Book Only)
Ch. 9.1 - Prob. 1STCh. 9.1 - Prob. 2STCh. 9.1 - Prob. 3STCh. 9.2 - Prob. 1STCh. 9.2 - Prob. 2STCh. 9.2 - Prob. 3STCh. 9.3 - Prob. 1STCh. 9.3 - Prob. 2STCh. 9.3 - Prob. 3STCh. 9 - Prob. 1VQP
Ch. 9 - Prob. 2VQPCh. 9 - Prob. 3VQPCh. 9 - Prob. 4VQPCh. 9 - Prob. 5VQPCh. 9 - Prob. 1QPCh. 9 - Prob. 2QPCh. 9 - Prob. 3QPCh. 9 - Prob. 4QPCh. 9 - Prob. 5QPCh. 9 - Prob. 6QPCh. 9 - Prob. 7QPCh. 9 - Prob. 8QPCh. 9 - Prob. 9QPCh. 9 - Prob. 10QPCh. 9 - Prob. 11QPCh. 9 - Prob. 12QPCh. 9 - Prob. 13QPCh. 9 - Prob. 14QPCh. 9 - Prob. 15QPCh. 9 - Prob. 16QPCh. 9 - Prob. 17QPCh. 9 - Prob. 18QPCh. 9 - Prob. 1WNGCh. 9 - Prob. 2WNGCh. 9 - Prob. 3WNGCh. 9 - Prob. 4WNGCh. 9 - Prob. 5WNGCh. 9 - Prob. 6WNG
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- Three ways to increase Consumption which would cause a shift right in the AD curve would be or orarrow_forwardQuestion 24 Consider a standard AD-AS model. If the marginal propensity to consume is zero, a temporary tax cut leads to a small increase in inflation and a large decrease in unemployment in the short run. Answer True or False. Remember to include your explanation.arrow_forwardDoes the AD curve shift?arrow_forward
- Suppose most business executives expect a slowdown in the economy. How might this situation affect the economy?arrow_forwardIn the AD/AS model assume 2019 began with potential real GDP = $19.7 trillion, while actual real GDP = $19.0 trillion and the Price Level (GDP Deflator) = 210. A year later the Price Level = 214 and actual real GDP = $18.9. Based on their relative effects on the AD/AS model, which of the following scenarios best explains this new outcome? The effect of %3D Group of answer choices an increase in government spending is MORE than the effect of decreased electricity prices. an increase in wages is LESS than the effect of a decrease in government spending. a decrease in oil prices is MORE than the effect of positive consumer expectations. an increase in inflationary expectations is MORE than the effect of increased government spending.arrow_forwarda) In the classical model, what is the impact of changes in the demand for goods and services on aggregate output? b) Did classical economists pay much attention to the supply-side effects of changes in income tax rates in the nineteenth and early twentieth centuries? Why or why not? What about supply-side economics?arrow_forward
- How would a dramatic increase in the value of the stock market shift the AD curve? What effect would the shift have on the equilibrium level of GDP and the price level?arrow_forwardNow think about a major recession, like the one that occurred in 1982. (Hint: a major recession could be caused by a large shift to the left in the AD curve.) Why would a Keynesian policy make more sense in response to a major recession like the one that occurred in 1982? What would be the cost of following a neoclassical policy then?arrow_forwardSuppose that productivity growth in Country X's economy has fallen to less than 1% per year. This has caused Country X to fall into a recession. Using the neoclassical model of AD/AS, which of the following will be most important for Country X? the growth rate of long-term productivity the problem of cyclical unemployment an increase in the annual unemployment rate O supply and demand in the labor marketarrow_forward
- What role do inventories play in the equilibrating process in the simple Keynesian model (as described in the TE-TP framework)?arrow_forwardWhich of the following would NOT cause a shift in AD? Select one: a. A reduction in interest rates b. A fall in the cost of production c. A reduction in income tax d. An increase in government spendingarrow_forward(Note: All your answers should be rounded to the nearest hundredth. Example: 12.034 =>12.03, 5.175=>5.18) For each of the following situations, use an AD/AS model to describe what happens to price levels and output in the United States in the short run. In each case assume the economy starts in long- and short-run equilibrium, and show the appropriate shifts in the AS or AD curves. Suppose that the AD and AS curves are given as: AD: AS: P=6.1-0.2 Y(GDP) P= -1 +0.15 Y(GDP) Using Excel create a spreadsheet with the column headings Y, AD,JAS, G, and T. Let's start with no change in G, and T. Fill in the spreadsheet's cells for Y= 19.0 to Y= 21.0 in increments of 0.1. What is the equilibrium GDP? What is the equilibrium P? Now, there is a decrease in Tax (T), i.e., tax cut by $1 (trillion). It is assumed that an 1 unit decrease in T shifts the AD curve to the right by 0.08 units. If P and Y (GDP) won't change immediately, what happens to the nation's output? (surplus, shortage, or no…arrow_forward
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