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 .

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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.

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