Question

67891011121314151610610510410310210110099989796PRICE LEVEL (CPI)REAL GDP (Billions of dollars)ASFull EmploymentAD1AD3AD2AD2 The initial short-run equilibrium level of real GDP...

67891011121314151610610510410310210110099989796PRICE LEVEL (CPI)REAL GDP (Billions of dollars)ASFull EmploymentAD1AD3AD2AD2

The initial short-run equilibrium level of real GDP isbillion, and the initial short-run equilibrium price level is.

Suppose the government, seeking full employment, borrows money and increases its expenditures by the amount it believes necessary to close the output gap. According to critics of Keynesian fiscal policy, which curve in the previous graph will most likely be the new aggregate demand curve?

AD1AD1

AD2AD2

AD3AD3

As a result, the equilibrium level of real GDP will bebillion, and the equilibrium price level will be.

According to critics of Keynesian fiscal policy, which of the following is true in this case?

The increase in deficit-financed government spending has no impact on real GDP and the price level.

The increase in deficit-financed government spending causes real GDP to increase to full-employment output.

The increase in deficit-financed government spending causes real GDP to increase, but not to full-employment output.

Real GDP does not increase; only the price level increases.

This is an example of .

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer:

given graph with AD curve.

answers are as below:

The initial short-run equilibrium level of real GDP is 10 trillion and the initial short-run equilibrium price level is 100.

Suppose the government, seeking full employment, borrows money and increases its expenditures by the amount it believes necessary to close the output gap. According to critics of Keynesian fiscal policy, curve in the previous graph will most likely be the new aggregate demand curve is:AD2.

As a result, the equilibrium level of real GDP will be 11 Trillion and the equilibrium price level will be 101.

According to critics of Keynesian fiscal policy, which of the following is true in this case is:

option(c) :

The increase in deficit-financed government spending causes real GDP to increase, but not to full-employment output.

This is an example of partial crowding out.

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
5- If an economy is in short-run equilibrium where the level of real GDP is less...
5- If an economy is in short-run equilibrium where the level of real GDP is less than potential output, then, in the long run, one will find: A-Nominal wages will rise and the SRAS curve will shift left bringing the economy back to its potential real GDP. B-Nominal wages will rise shifting the AD curve to the right and restoring real GDP to its potential level C-Nominal wages will fall and the SRAS curve will shift right bringing the economy...
As the level of real GDP increases, the short-run aggregate supply curve: a. shifts to the...
As the level of real GDP increases, the short-run aggregate supply curve: a. shifts to the right. b. shifts to the left. c. becomes flatter. d. becomes steeper. e. becomes horizontal to the real GDP axis. Firms' profits or production do not increase in the long run because: a. some factors of production are fixed in the long run. b. all the factors of production are variable in the long run. c. changes in factor costs completely offset any change...
Suppose a rise in consumer confidence causes aggregate demand to increase, resulting in a short-run equilibrium...
Suppose a rise in consumer confidence causes aggregate demand to increase, resulting in a short-run equilibrium that is above the equilibrium levels of full employment output and the equilibrium target price level for the Fed. What type of monetary policy might the Fed use to reduce inflationary pressures and to bring the economy back to full employment? Describe the transmission channel from the Fed’s primary method of conducting monetary policy to spending in the economy.
Use the table below to answer the following questions Price level Real GDP supplied (short run)...
Use the table below to answer the following questions Price level Real GDP supplied (short run) Real GDP demanded 100 550 600 110 575 575 120 600 550 130 625 525 Calculate short-run equilibrium and the price level If potential GDP equals 625, what is the gap called and what is the amount of the gap? If potential GDP equals 550, what is the gap called and what is the amount of the gap? Use the table below to answer...
Consider an economy that is initially in equilibrium. The government, in order to boost the economy,...
Consider an economy that is initially in equilibrium. The government, in order to boost the economy, increases government purchases and fully finances this increase by levying a lump-sum tax on households. Suppose that there is no income effects in labor supply. How does this policy affect the economy a. In the long run and according to the classical view, real GDP increases. b. In the short-run and according to the Keynesian view, real GDP decreases. c. In the short-run and...
When the economy is in a short-run equilibrium, with output greater than potential GDP, the short-run...
When the economy is in a short-run equilibrium, with output greater than potential GDP, the short-run aggregate supply curve will shift to the left. Why would this happen? With output above potential GDP, the economy produces too many goods and those goods are sold at prices that are too high. This happens only after government interference. With output above potential GDP, wages will be bid up and the expected price level will rise from the increase in the actual price...
Assume that the economy is currently in equilibrium with real GDP equal to $6 trillion and...
Assume that the economy is currently in equilibrium with real GDP equal to $6 trillion and a real interest rate of 5%. However, full employment requires that real GDP be equal to $7 trillion. Compare the effects of moving the economy to full employment using only fiscal policy (shifting the IS curve) and moving the economy to full employment using only monetary policy. (4)
1) Equilibrium output will rise and the equilibrium interest rate will fall if : A) government...
1) Equilibrium output will rise and the equilibrium interest rate will fall if : A) government spending increases B) net exports increase. C) there is an autonomous increase in money demand D) the Fed increases the money supply 2) In the IS/LM model A) the money supply is always fixed B) consumptions expenditures are fixed C) the price level is fixed D) the level of real GDP is fixed 3)Changes in monetary policy shift the LM curve, while changes in...
The real money demand curve is given by: L d (R, Y ) = 0.5Y −...
The real money demand curve is given by: L d (R, Y ) = 0.5Y − 100R − 20 where Y is the real GDP and R refers to the interest rate. The initial monetary base level MB = 100. The initial money supply level Ms = 200, price level P = 10 and initial output level Y = 100. 1. Calculate the initial money multiplier and equilibrium interest rate. The Fed increases the monetary base by 10% through open...
The total expenditure schedule in Macroland begins with these initial levels (in billions of dollars): Income...
The total expenditure schedule in Macroland begins with these initial levels (in billions of dollars): Income = 1,000; Consumption = 900; Investment = 200; Government = 300; Net Exports = −100. If the MPC = 0.75 and income increases in increments of 200, find the equilibrium level of income. If full employment requires an income level of 2,000, what (if anything) should the government do? Indicate both the direction of the spending change and the size of the spending change.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT