Instructions: Enter your answer as a whole number. If you are entering a negative number include a minus sign. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.6, how much do taxes need to change to shift aggregate demand by the amount you found in part a? $ billion Suppose instead that the MPC is 0.8. c. How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and taxes need to change by $ billion. The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by changing taxes to reduce the burden of this recession. Fiscal Policy Real GDP (billions of dollars) ง c

Instructions: Enter your answer as a whole number. If you are entering a negative number include a minus sign. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.6, how much do taxes need to change to shift aggregate demand by the amount you found in part a? $ billion Suppose instead that the MPC is 0.8. c. How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and taxes need to change by $ billion. The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by changing taxes to reduce the burden of this recession. Fiscal Policy Real GDP (billions of dollars) ง c

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 8P

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The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decides to conduct fiscal policy by decreasing government purchases to restore full-employment GDP 0 Price Level 180 160 140 120 100 80 60 40 20 0 Fiscal Policy LRAS AS AD 100 200 300 400 500 600 700 800 900 1000 Real GDP (billions of dollars)
The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decides to conduct fiscal policy by changing taxes to bring inflation under control. Price Level Fiscal Policy 160 150 140 130 120 110 100 90 80 70 60 50 40 80 160 240 320 400 480 560 640 720 800 LRAS Real GDP (billions of dollars) AS AD₁ AD
Consider the graph at right showing an economy in recession. Aggregate demand is currently at AD. Equilibrium currently occurs at Eo. If aggregate demand was ADF, there would be full employment. Suppose the government engages in fiscal policy that results in full crowding out. Using the line drawing tool, draw the new demand curve that shows full crowding out. Carefully follow the instructions above, and only draw the required object. Price level Eo EF ADO F Real GDP per Year ($ trillions) SRASO ADF O U
Instructions: Enter your answers as a whole number. B. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.75, how much does government purchases need to change to shift aggregate demand by the amount you found in parta? $ billion Suppose instead that the MPC is 0.6. C. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $1 Price Level 160 140 120 100 80 60 40 20 0 LRAS (240,90) AD₁ billion. Real GDP (billions of dollars) AS AD 80 160 240 320 400 480 560 640 720 800
Check my work mode: This shows what is correct o Ecives to conut ca puncy by changing lants to Fiscal Policy 140 LRAS AS 130 120 110 100 Price Level 90 80 70 60 50 AD, 40 0 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Enter your answer as a whole number if unu are < Pri AD
Only typed answer a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ ___billion b. Assuming the MPC in this nation is 0.75, how much do government purchases need to change to shift aggregate demand by the amount you found in part a? $ ___billion c. Now suppose the MPC is 0.6. To restore the economy to its long-run equilibrium, aggregate demand must be changed by $ ___billion and government purchases must be changed by $ ___billion.
14. The economy is experiencing a $225 million inflationary gap. If the government 02 decided to solve this macroeconomic disequilibrium using a change in taxes, would you recommend an increase or decrease in taxes? If the MPC=0.9, what magnitude of tax change would be appropriate?
An economy’s aggregate demand is specified as follows:C = 300 + 0.8Yd, Investment (Io) = 230, Taxes (T) = 120 + 0.2Y, Government final purchase = 400, Export (X) =240 and Import (M) = 400.i. Find the equilibrium national incomeii. Find the value of the injections in this economyiii. How much withdrawals are when the economy is in equilibrium
- Assuming that there is no government spending or trade, an economy’s GDP is the sum of domestic consumption C and investment I, i.e. Y = C+ I- Assume that I is unaffected by GDP- Assume the consumption function is C = c + c Y- In any equilibrium aggregate demand, AD must be equal to Y, GDP. Which NINE of the following statements are correct? a. The aggregate demand equation is given by AD = c + c Y + I b. c is equal to autonomous consumption c. if c is a number between 0 and 1, and I+c >0 then the aggregate demand equation is a straight line that must intersect the 45 degree line at some point. d. In a demand-driven economy the AD curve is a vertical line e. In a demand-driven economy demand is equal to supply in equilibrium f. In a supply-driven economy demand is equal to supply in equilibrium g. In a demand-driven economy, supply creates its own demand h. If the economy above is a demand-driven economy, then the equilibrium solution for Y is given by Y= c + c + I i. If…
Look at Figure 2. Assume this aggregate demand diagram represents an economy with government, where: a = exogenous consumption b = the marginal propensity to consume t = the tax rate |= investment G = government spending Y = income Figure 2 Aggregate demand AD, AD. 45° Income What is the equation for the aggregate demand schedule ADo? Select one: O ADO = b+ a(1 - t)G +1+ Y O ADO = a + b(1 – 1)Y + 1+ G O ADO = a + b(1 - t) I+ Y+ G O ADO = b+ a(1 – 1)Y + /+ G Next page > ( Previous page PHILIPS
A. Assume that a hypothetical economy with an MPC of .75 is experiencing severe recession. By how much would government spending have to rise to shift the aggregate demand curve rightward by $70 billion? B. How large a tax cut would be needed to achieve the same increase in aggregate demand?
6. The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by changing taxes to reduce the burden of this recession. Fiscal Policy 140 LRAS AS 130 120 110 100 90 80 70 AD 60 50 AD, 40 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Enter your answer as a whole number. If you are entering a negative number include a minus sign. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? 24 billion b. If the MPC is 0.8, how much do taxes need to change to shift aggregate demand by the amount you found in part a? Price Level