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The graph below shows real GDP levels over time. Answer the following questions based on this graph. Real GDP Business Cycle A Time a. At time T, what is the economy experiencing? O an economic expansion O full-employment output O an economic contraction b. In order to smooth out the business cycle, what type of fiscal policy should the government undertake? O expansionary fiscal policy O contractionary fiscal policy c. What type of actions might the government take? O a decrease in taxes and an increase in government purchases O an increase in taxes and a decrease in government purchases O a decrease in both taxes and government purchases. O an increase in both taxes and government purchases

Question 23 Price level (GDP deator 2000-100) 130 120 110. 100 90 0 9 Potential GOP AS AD 9.5 10 10.5 11 115 Real GDP (trillions of 2000 dollars) If an economy is at the macroeconomic equilibrium illustrated by the figure above, an appropriate fiscal policy to adjust the economy to full employment,Yf is to implement increase money supply O decrease government expenditures and/or raise taxes O decrease taxes and/or raise government expenditure. O decrease money supply

10.1For each of the following events,explain the short-run and long-run effects on output and price level,assuming policymakers take no action. a) The stock market declines sharply,reducing consumers' wealth. b) The federal government increases spending on national defence. 10.2 In which of the following circumstances is expansionary fiscal policy more likely to lead to a short-run increase in investment?Explain. a)When the investment accelarator is large or when it is small?

6,/In each of the following cases, either a recessionary or inflationary gap exists. Assume that the aggregate sup- ply curve is horizontal, so that the change in real GDP arising from a shift of the aggregate demand curve equals the size of the shift of the curve. Calculate both the change in government purchases of goods and ser- vices and the change in government transfers necessary to close the gap. a. Real GDP equals $100 billion, potential output equals $160 billion, and the marginal propensity to consume is 0.75.

Which of the following statements is true of government spending? O An increase in government spending raises the equilibrium level of income by a multiple of the original spending increase. O Government spending is a part of monetary policy, not fiscal policy. O A decline in government spending brings about an expansion in the economy. O An increase in government spending increases the recessionary gap in the economy. An increase in government spending shifts the aggregate demand curve downward by a fraction of the rise in governiment spending.

Overall Price Level 49 43 32 19 AD2 AS O Increase government spending: $19 O Increase taxes; $26 O increase taxes; $19 O Increase government spending; $29 AD 26 29 Real GDP Please refer to the graph above. Assume we begin in equilibrium at ADO and AS. Ceteris paribus, which fiscal policy will lead to which initial real GDP?

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. Price Level 160 140 LA 120 100 80 60 40 20 0 Fiscal Policy LRAS AD₁ Real GDP (billions of dollars) billion AS 80 160 240 320 400 480 560 640 720 800 AD O Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? billion B b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? Suppose instead that the MPC is 0.75. c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.

5. Fiscal pollcy, the money market, and aggregate demand Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD1). Suppose now that the government increases its purchases by $2.5 billion. / Tools Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD,) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (ADs) is parallel to ADj. You can see the slope of ADi by selecting it on the following graph. Suppose that for every increase in the interest rate of one percentage point, the level of investment spending declines by $0.5 billion. Based on the changes made to the money market in the previous scenario, the new interest rate causes the level of investment spending to _____ by____ A-z T Tips Tips Taking the multiplier effect into account, the…

explanation. Be sure to exp Assume the United States has been in another recession for the past 10 months. Unemployment is 10% and GDP has dropped $1.9 trillion from its previous peak of $ 20.8 trillion. The housing and heavy equipment industries have been hit the hardest. Inflation has been near the 2% target but has started to dip below. Also, the countries average MPC is 60. Determine the best fiscal policy/strategy to help the economy recover and explain why it is the best choice. Be sure to reference Aggregate Demand and Aggregate Supply and explain your specific tools in your answers. Calculations Explanation Graph (More space for the explanation on the back)

Determine how each of the following monetary or fiscal policy would shift the aggregate demand curve. Illustrate and explain the following effect. a. Assuming the economy is currently producing above the full employment output, the government decided to increase the personal income tax as a form of contractionary fiscal policy. Illustrate and explain the effect of the policy using AD-AS curve. b. With the recession due to COVID-19, the central bank has decided to lower down discount rates and reserve requirements of the commercial bank. Illustrate and explain the effect of the policy using AD-AS curve.

-SRAS PL, PL AD2 AD Y,Y2 REAL GDP The Aggregate Demand Model shows an increase in Aggregate Demand or GDP, Which type of Fiscal Policy was used to cause this change and why? Expansionary Policy to raise GDP and lower the unemployment rate Expansionary Policy to raise GDP and lower Inflation Contractionary Policy to decrease GDP and lower the unemployment rate Contractionary Policy to increase GDP and Increase Inflation PRICE LEVEL

Which of the following statements is true? O A balanced budget would not affect income because an increase in government spending is exactly matched by an increase in taxes. OIf crowding out exists, contractionary fiscal policy will cause the aggregate demand curve to shift in by more" than indicated by the government spending multiplier. O When aggregate expenditures are greater than real GDP, there will be inventory accumulation. O The flatter the aggregate supply curve, the less the amount of government spending necessary to close a $1 billion GDP gap.

Figure 16-7 Price level P3 a P₂ P₁ 0 LRAS A increase taxes LRAS 8 с Y₂ Ya contractionary fiscal policy O increase government spending O decrease interest rates SRAS₁ AD₁ SRAS AD₂ Refer to Figure 16-7. Given that the economy has moved from A to B in the graph above, which of the following would be the appropriate fiscal policy to achieve potential GDP? Real GDP (trillions of dollars)