Question

Consider the Aggregate Demand-Aggregate Supply framework; assume expected inflation is always zero. Starting at Yn, suppose...

Consider the Aggregate Demand-Aggregate Supply framework; assume expected inflation is always zero. Starting at Yn, suppose a tax cut is implement which (i) increases disposable income, and (ii) increases the incentive to work so that labor supply increases. Show the immediate effect in an AD-AS graph.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Decrease in taxes generally lead to higher disposable incomes and hence the employee productivity also rises and labor supply rises due to better wages. This further leads to rise in aggregate demand as consumption increased. Due to this the prices also rise causing inflation to rise from zero levels and thus the GDP grows as well due to higher aggregate demand .

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
3. Consider the Aggregate Demand-Aggregate Supply framework. Suppose government spending is increased when we are not...
3. Consider the Aggregate Demand-Aggregate Supply framework. Suppose government spending is increased when we are not in a liquidity trap, output is at the natural rate of output, and the Fed does not target the interest rate. You can assume for simplicity expected inflation is always zero. Show what happens over time to output, the price level, and the interest rate. In the long run, what happens to investment given this expansionary fiscal policy.
Suppose the aggregate demand and the short-run aggregate supply of a country INCREASES. a) Starting from...
Suppose the aggregate demand and the short-run aggregate supply of a country INCREASES. a) Starting from a long-run equilibrium, use an AD-AS diagram illustrate the effects of these two changes. Label the initial long-run equilibrium as point A and the resulting short-run equilibrium as point B. b) Suppose policymakers adopt contractionary macroeconomic policies to restore the long run equilibrium. On the same diagram from part a, show the resulting impact on AD or AS curve and label the new long-run...
The aggregate demand curve shows the relationship between the aggregate price level and: A) aggregate productivity....
The aggregate demand curve shows the relationship between the aggregate price level and: A) aggregate productivity. B) the aggregate unemployment rate. C) the aggregate quantity of output demanded by households, businesses, the government, and the rest of the world. D) the aggregate quantity of output demanded by businesses only. 2.When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in consumer spending. This is known as the _____ effect and is a reason why...
1. Which of the following accounts for a movement along a given AD curve? a. The...
1. Which of the following accounts for a movement along a given AD curve? a. The substitution effect b. The tax rate effect c. The real-balance effect d. The foreign aid effect e. The government spending effect 2. If the nominal interest rate is 6.3 percent and the inflation rate is 7.2 percent, then the real interest rate equals: a. - 13.5 percent b. + 13.5 percent c. - 0.9 percent d. - 7.2 percent e. + 1.1 percent 3....
ECO 101-S70: Final Quiz 2 CHAPTER 3: Demand, Supply and Equilibrium 1. Which of the following...
ECO 101-S70: Final Quiz 2 CHAPTER 3: Demand, Supply and Equilibrium 1. Which of the following could cause a decrease in consumer demand for product X? a.   a decrease in consumer income b.   an increase in the prices of goods which are good substitutes for product X c. an increase in the price which consumers expect will prevail for product X in the future d. a decrease in the supply of product X 2. If two goods are substitutes for...
The crowding out effect is zero if Select one: a. the LM-curve is vertical b. the...
The crowding out effect is zero if Select one: a. the LM-curve is vertical b. the central bank conducts open market sales following fiscal expansion c. income is stimulated via a tax cut rather than an increase in government spending d. the central bank conducts open market purchases following fiscal expansion e. the LM-curve is horizontal An asset (other than money) is considered to be more liquid if Select one: a. it can be quickly and cheaply transferred into money...
1. The Federal Reserve Act says that the Fed must try to achieve​ ______. A. a...
1. The Federal Reserve Act says that the Fed must try to achieve​ ______. A. a balanced budget B. maximum​ employment, stable​ prices, and moderate​ long-term interest rates C. a stable U.S. dollar on foreign exchange markets and moderate​ long-term and​ short-term interest rates D. an economic environment in which investment in U.S. stock and money markets is encouraged The Federal Reserve Act says that the Fed must use​ ______ to achieve its objectives. A. bank reserves B. commercial banks...
THIS IS THE GENERAL EQUILIBRIUM PROBLEM THAT I PROMISED. YOU FIRST SOLVE FOR THE INITIAL EQUILIBRIUM...
THIS IS THE GENERAL EQUILIBRIUM PROBLEM THAT I PROMISED. YOU FIRST SOLVE FOR THE INITIAL EQUILIBRIUM AS POINT A. WE CONSIDER TWO DIFFERENT AND SEPARATE SHOCKS (I CALL THEM SCENARIOS). THE FIRST SHOCK IS TO THE IS CURVE, THE SECOND SHOCK IS A ‘LM’ SHOCK. AGAIN, WE CONSIDER THESE SHOCKS SEPARATELY SO THAT AFTER YOU COMPLETE SCENARIO 1 (THE IS SHOCK), WE GO BACK TO THE ORIGINAL CONDITIONS AND CONSIDER THE SECOND SCENARIO WHICH IS THE ‘LM’ SHOCK. Consider the...
62. As noted in the article about trading pits, a. futures pits in Chicago were closing...
62. As noted in the article about trading pits, a. futures pits in Chicago were closing down. b. futures pits in New York were closing down. c. floor trading on the New York Stock Exchange were closing down. d. All of the above. e. Only A and B of the above. 63. Which of the following are among the lessons that we can reasonably draw from the collapse of Continental Illinois? a. The aggressive pursuit of commercial loans was doomed...
Sign In INNOVATION Deep Change: How Operational Innovation Can Transform Your Company by Michael Hammer From...
Sign In INNOVATION Deep Change: How Operational Innovation Can Transform Your Company by Michael Hammer From the April 2004 Issue Save Share 8.95 In 1991, Progressive Insurance, an automobile insurer based in Mayfield Village, Ohio, had approximately $1.3 billion in sales. By 2002, that figure had grown to $9.5 billion. What fashionable strategies did Progressive employ to achieve sevenfold growth in just over a decade? Was it positioned in a high-growth industry? Hardly. Auto insurance is a mature, 100-year-old industry...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT