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 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. EF Yo YF ADO Real GDP per Year ($ trillions) SRASO ADF Q G
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- The aggregate demand function: yad =C+1+G₁ = 500+ 0.75Y is plotted on the graph to the right. The graph also shows the 45° line where aggregate output Y equals aggregate demand yad for all points. What happens to aggregate output if government spending rises by 100? The equilibrium level of output rises by $ billion. (Round your response to the nearest billion.) Consumption Expenditure, C ($ billions) 3000- 2800- 2600- 2400- 2200- 2000- 1800- 1600- 1400- 1200- 1000- 800- 600- 400- 200- 0- 0 yad =C+I+G₁ = 500 +0.75Y Y = yad 45° 400 800 1200 1600 2000 2400 2800 Disposable Income ($ billions)a) About Country A, what is your estimate of the country's marginal propensity to consume (MPC) based on the following information on its GDP (Y) and the components thereof (in billion dollars) for two past years? Show calculation. Year 1 Year 2 c) GDP C I 11200 8000 2200 12000 8500 2400 G 800 880 The next few parts are about Country B, whose government plans to cut taxes by $24 billion as a measure to fight the current recession. The marginal propensity to consume (MPC) in Country B is known to be 34. There will be no crowding-out effect. e) NX 200 220 b) What is the initial effect (in billion dollars) of the tax cut on Country B's aggregate demand? (The "initial effect" here refers to the effect on AD after only the first round of increased spending.) What is the total effect of the tax cut on aggregate demand? Explain why it is different from the initial effect. d) How does the total effect of this $24 billion tax cut compare to the total effect of a $24 billion increase in…True or False : A recessionary gap can be caused by consumers who spend more than the earn. True False
- 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 equilibriumConsider the economy represented by the aggregate demand aggregate supply (AD-AS) graph shown, where output is below full employment output (Y*) and unemployment is above the natural rate. To move out of a recession, the government should decrease taxes and increase government spending. increase taxes and decrease government spending. O decrease taxes and government spending. increase taxes and government spending. Adjust the graph to reflect the result of this policy action. Price level (P) Real GDP (Y) LRAS AD SRASSuppose an economy had aggregate demand components with the following relationships: Consumption spending, C=140+.60*(DY) Investment spending,I=25+.15*Y Government Spending, G= 0 Net Export Spending,X=0 Tax collections, Tx=0 a. What is the equilibrium income for this economy? b. If the government decided to increase G spending by 6, what would be the new equilibrium income for this economy? c. If instead the government decided to reduce Tx (taxes) by 10, what would be the new equilibrium income for the economy? d. If instead the government decided to increase G spending and Increase Tx (taxes) by 20, what would be the new equilibrium for this economy?
- uèstion 21 pounts The economy is in a recession. The government enacts a policy to increase the real GDP by $10 billion. The MPS is 0.2. Assuming that the agggregate supply curve is horizontal across the range of GDP being considered, by how much should the government change spending or taxes in order to achieve its objective? Show your calculations. e For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). BIUS Paragraph Arial 10pt A v x X, Re v 55 OWORDS POWERED 図 田 lili 用THE AGGREGATE EXPENDITURE MODEL (IN THE SHORT RUN)YOU MUST SHOW YOUR CALCULATIONS IN THE SPACE BELOWFOR THE NEXT PROBLEM USE THE FOLLOWING FORMULA:CHANGE IN GDP = [ 1 / (1-MPC) ] * CHANGE IN GInitially, the economy is producing $13 trillion in goods and services and the government is spending $2 trillion.Then the government decides to increase its spending to $2.7 trillion. Compute the new equilibrium level of output. Assume that the marginal propensity to consume is 0.7 (MPC=0.7).O Macmillan Learning The graph shows the income-expenditure model for the country of Desireland, where AE represents aggregate expenditure. The Desirish government wants to stimulate the economy owing to a slowdown in economic activity and, as such, decides to increase infrastructure spending by $7.65 billion. Show the impact of this extra spending given a marginal propensity to consume (MPC) of 0.7 and a total tax take of 30%, for any changes in GDP. In this example, assume that there is no international trade or inflation, and that interest rates are fixed. Planned aggregate spending (in billions of dollars) 70 65 60 55 50 45 40 35 30 25 20 15 10 5 0 0 01- 5 10 15 20 25 30 35 40 45 50 Real GDP (in billions of dollars) 45 degree line A new socialist government is elected to Desireland and decides to increase direct spending even more, to total of $9.7 billion. What will be the total change in real GDP? Please provide the answer to the nearest whole billion. Planned AE 55 60 65 70…
- Only typed answer An economy is described by the following equations: C = 60 + 0.75 (Y – T) I p = 100 G = 150 NX = 30 T = 180 Y* = 760 By how much would government purchases have to change in order to eliminate any output gap?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. Find the equilibrium national income? Find the value of the injections in this economy iii. How much withdrawals are when the economy is in equilibrium?Consider the following table showing national income in billions of dollars. Assume that the marginal propensity to import is 20% and the level of exports is $60 billion. Calculate the level of net exports for each level of actual income and fill in the table below. (Round your responses to the nearest whole number.) Actual National Income (Y) (Billions of $) 200 400 600 800 1000 Net Exports (X-IM) (Billions of $) Now assume that the marginal propensity to import increases to 25%. Calculate the new level of net exports for each level of actual income and fill in the table below. (Round your responses to the nearest whole number.) Actual National Income (Y) (Billions of $) 200 Net Exports (X-IM) (Billions of $) 400 600 800 1000 When we compare these two tables, we can see that for a given level of exports, the higher the marginal propensity to import, the the level of net exports will be at each level of income.