Question

2. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled...

2. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,” you must show how you arrived at your final answer.

The economy of Newland is in short-run macroeconomic equilibrium. The current real output is $400 billion, and the full employment output is $500 billion. The marginal propensity to consume is 0.8.

(a) Is the economy experiencing a recessionary output gap or an inflationary output gap? Explain.

(b) Assume Newland’s government is considering taking action to close the output gap identified in part (a).

(i) Calculate the minimum change and indicate the direction of change in government spending required to shift the aggregate demand curve to close the output gap. Show your work.

(ii) If instead Newland’s government changes taxes without changing government spending, calculate the minimum change and indicate the direction of change in taxes required to shift the aggregate demand curve to close the output gap. Show your work.

(c) Which fiscal policy action, changing government spending or changing taxes, is more effective in closing the output gap? Explain.

(d) Assume instead Newland’s government decides not to take any policy action. Will short-run aggregate supply increase, decrease, or stay the same in the long run? Explain.

Please respond on separate paper, following directions from your teacher.

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram...
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,” you must show how you arrived at your final answer. Assume gadgets are sold in a competitive market, the equilibrium price is $6, and the equilibrium quantity is 500 units. (a) Using the numerical values above, draw a correctly labeled graph of the market...
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram...
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to "Calculate," you must show how you arrived at your final answer. In the small country of AgroIsland, the equilibrium price of wheat is $10$10 per bushel. Wheat is produced in a competitive industry. The world market price of wheat is $20$20 per bushel. (a) Assume...
Please answer the blanks. The answer choices are bolded and in parenthesis. Suppose an economy at...
Please answer the blanks. The answer choices are bolded and in parenthesis. Suppose an economy at long run equilibrium experiences an increase in aggregate demand. Real GDP will be (GREATER OR LESS)   than potential GDP, resulting in an expansionary gap. To close the expansionary gap, the aggregate demand would need to be shifted to the (RIGHT OR LEFT)   , representing (A DECREASAE OR AN INCREASE)   in aggregate demand. This could be accomplished by (INCREASING OR DECREASING)   government spending or (INCREASING...
1. Covid-19 has slowed down the global economy. In a situation like this, as an advisor...
1. Covid-19 has slowed down the global economy. In a situation like this, as an advisor to the treasurer of federal government of Australia, advise the treasurer on what type of fiscal policy should be enacted? How would this be enacted via taxes? Through government spending What is the intended effect of this policy on aggregate demand? Diagram 2. What effect does rising business optimism and confidence have on the aggregate demand curve? Give examples. 3. Suppose a summer of...
agree or disagree 75+ words Fiscal policy affects aggregate demand through changes in government spending and...
agree or disagree 75+ words Fiscal policy affects aggregate demand through changes in government spending and taxation. When the government decides on the goods and services it purchases, the transfer payments it distributes, or the taxes it collects, it is engaging in fiscal policy. The primary economic impact of any change in the government budget is felt by particular groups—a tax cut for families with children, for example, raises their disposable income. Discussions of fiscal policy, however, generally focus on...
The following hypothetical data shows the demand schedule for business investment (or the amount of business...
The following hypothetical data shows the demand schedule for business investment (or the amount of business investment that would be generated at various rates of interest). Interest Rate (%) Business Investment   ($Billions) 0.50 360.0 0.75 355.0 1.00 350.0 1.25 340.0 1.50 330.0 1.75 320.0 2.00 310.0 2.25 295.0 2.50 280.0 2.75 265.0 3.00 250.0 Hypothetical assumptions for the economy:   Leakages are 40% of new income.                                                                                                                         The current bank rate is 1.50%. The current Real GDP in 2019 dollars is...
Currently, a government's budget is balanced. The marginal propensity to consume is 0.80. The government has...
Currently, a government's budget is balanced. The marginal propensity to consume is 0.80. The government has determined that each additional $10 Billion in new government debt it issues to finance a budget deficit pushes up the market interest rate by 0.1 percentage point. It has also determined that every 0.1 percentage point change in the market interest rate generates a change in investment expenditures equal to $2 Billion. Finally, the government knows that to close a recessionary gap and take...
Sketch a graph using instructions below and answer the following questions. Label both axes and all...
Sketch a graph using instructions below and answer the following questions. Label both axes and all curves. Draw LRAS and show a potential equilibrium output as Y*. Draw SRAS. Have your AD1 intersect this SRAS significantly below the potential output. Label AD1-SRAS equilibrium as point A. Have your AD2 intersect the same SRAS slightly above the potential output. Label AD2-SRAS equilibrium as point B. Graph:    Refer to the graph in part a): Suppose the economy is currently at point...
MACROECONOMICS - Aggregate demand curve--- MULTIPLE CHOICe -- PLEASE EXPLAIN YOUR ANSWER/explain your choice SECTION 1:...
MACROECONOMICS - Aggregate demand curve--- MULTIPLE CHOICe -- PLEASE EXPLAIN YOUR ANSWER/explain your choice SECTION 1: Graphically, what would cause the aggregate demand curve to shift to the right? A) an increase in taxes B)   decrease in government spending on goods and services C) an increase in net tax revenues D) Counter-cyclical fiscal policy and a recessionary gap E) Counter-cyclical fiscal policy and an inflationary gap. ---------------------------------------------------------------------------------- SECTION 2: Which of the following is true regarding the aggregate demand curve?...
Governments to get the economy out of recession or cool the economy down when the economy...
Governments to get the economy out of recession or cool the economy down when the economy is overheating often use fiscal policy.   1. What is fiscal policy?   2. How can it be used to get the economy out of recession? 3. How can it be used to get the economy out of the situation where the economy is in an expansionary period where we exceed long run potential?   4. Do both situations result on different impacts on inflation? Why or...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT