Let’s assume that the economy in the United States is higher than the potential GDP. If the government uses a contractionary fiscal policy to decrease GDP, the: Group of answer choices aggregate demand curve will shift to the right. aggregate supply curve will shift to the left. aggregate supply curve will shift to the right. aggregate demand curve will shift to the le

Let’s assume that the economy in the United States is higher than the potential GDP. If the government uses a contractionary fiscal policy to decrease GDP, the: Group of answer choices aggregate demand curve will shift to the right. aggregate supply curve will shift to the left. aggregate supply curve will shift to the right. aggregate demand curve will shift to the le

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter16: Expectations Theory And The Economy

Section: Chapter Questions

Problem 10QP

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Right now many economies in the world are experiencing a downturn due to the Corona Virus.a) What kind of fiscal policy can governments use to address the decline? b) What actions will be taken by the government in implementing the fiscal policy that you described in part a? c) What will be the effect on Aggregate Demand (if any) as a result of the actions taken in part b?d) What will be the effect on Aggregate Supply (if any) as a result of the actions taken in part b?
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by changing taxes to reduce the burden of this recession. Fiscal Policy Instructions: Enter your answer as a whole number. If you are entering a negatlve number Include a minus sign. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrilum? $, billion b. If the MPC is 0.6 , how much do taxes need to change to shift aggregate demand by the amount you found in part a? $, billion Suppose Instead that the MPC is 0.8 . c. How much does aggregate demand and taxes need to change to restore the economy to Its long-run equilibrlum? Aggregate demand needs to change by $ billion and taxes need to change by $ billion.
Suppose that Congress and President decide on lowering taxes and increasing government spending in the next fiscal year. According to the aggregate demand and aggregate supply model: both the tax cut and the government spending would tend to increase the real GDP. only the tax cut would tend to increase the real GDP. neither the tax cut nor the increase in government spending would tend to increase the real GDP. only the increase in government spending would tend to increase the real GDP.
Use the Aggregate Demand – Aggregate Supply Model to demonstrate the effects of expansionary fiscal policy. Assume that the GDP is below full-employment GDP. Show the effects on both GDP and on prices. What are the results for GDP, prices, and unemployment? Explain.
Why do Republicans like tax cuts? Why are tax cuts a good thing? How does it affect the aggregate supply and demand graph?
a. Which statement best describes the classical fiscal policy prescription for a recession? Select "Do nothing; the economy will self-adjust." "Increase government spending and/or decrease taxes." "Decrease government spending and/or increase taxes." b, Which statement best describes the Keynesian fiscal policy prescription for a recession? Select "Decrease government spending and/or increase taxes." "Increase government spending and/or decrease taxes." "Do nothing. If V is stable, fiscal policy does not matter." c. Which statement best describes the monetarist fiscal policy prescription for a recession? Select "Do nothing. If V is stable, fiscal policy does not matter" "Increase government spending and/or decrease taxes" "Do nothing; the economy will self-adjust." d. Which statement best describes the Keynesian monetary policy prescription for a recession? Select "Decrease the money supply. Higher interest rates decrease investment." "Increase the money supply. Lower interest rates…
Use the aggerate demand and aggerate supply model to analyze the impact on the following scenarios As a result, of this change in fiscal policy is the likely short run effect on prices and unemployment? Prices increase, unemployment increases Prices decrease, unemployment increases Prices decrease, unemployment decreases Prices increase, unemployment decreases Incorrect Question 18 As a result of this effects, the population believes that inflation will be higher in the future, What are the effects of this change? Lower prices and higher unemployment Lower prices and unemployment Higher prices and and lower unemployment Higher prices and unemployment
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Fiscal Policy Price Level 180 LRAS AS 160 140 120 100 80 60 40 20 0 AD AD1 100 200 300 400 500 600 700 800 900 Real GDP (billions of dollars) (900, 120) Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to increase to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.75, how much does government purchases need to increase to shift aggregate demand by the amount you found in part a? $ billion Suppose instead that the MPC is 0.6. c. How much does aggregate demand and government purchases need to increase to restore the economy to its long-run equilibrium? Aggregate demand needs to increase by $ billion and government purchases need to increase by $ billion.
A contractionary fiscal policy shifts the aggregate demand curve leftward. true or false?
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The following graph shows the aggregate demand curve. Shift the aggregate demand curve on the graph to show the impact of a tax hike. 130 120 Aggregate Demand 110 100 90 Aggregate Demand 80 70 10 20 30 40 50 60 OUTPUT Suppose the governments of two different economies, economy J and economy K, implement a permanent tax cut of the same size. The marginal propensity to consume (MPC) in economy J is 0.85 and the MPC in economy K is 0.8. The economies are identical in all other respects. The tax cut will have a larger impact on aggregate demand in the economy with the PRICE LEVEL
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