Answer the questions below a. Discuss why the aggregate supply (AS) curve is relatively flat within the low ranges ofC aggregate output. b. Discuss why the aggregate supply (AS) curve is relatively vertical within the ranges of high aggregate output. C. Which part of the AS curve, fiscal policy works better and why, explain.

Answer the questions below a. Discuss why the aggregate supply (AS) curve is relatively flat within the low ranges ofC aggregate output. b. Discuss why the aggregate supply (AS) curve is relatively vertical within the ranges of high aggregate output. C. Which part of the AS curve, fiscal policy works better and why, explain.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 4P

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Answer the questions below.a. Discuss why the aggregate supply (AS) curve is relatively flat within the low ranges ofaggregate output. b. Discuss why the aggregate supply (AS) curve is relatively vertical within the ranges ofhigh aggregate output. c. Which part of the AS curve, fiscal policy works better and why, explain.
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 160 140 120 100 80 60 40 20 0 Fiscal Policy LRAS AD billion AS AD 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) 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. 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 0.5. 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.
Answer the questions below. a, Discuss why the aggregate supply (AS) curve is relatively flat within the low ranges of aggregate output. b. Discuss why the aggregate supply (AS) curve is relatively vertical within the ranges of high aggregate output. c. Which part of the AS curve, fiscal policy works better and why, explain.
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 160 140 120 100 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 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 O b. If the MPC is 0.8, 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 0.9. 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.
Our macroeconomic model suggests that after a decline in aggregate demand like that of 2007, the economy will self correct and return to a position where the GDP gap is zero. If this is correct, why should the government ever intervene with fiscal policy? a. It take many years for the GDP gap to close on its own. b. This is part of the government's "mission statement" as given in the Constitution. c. Fiscal policy is profitable for banks. d. People do not trust the theory behind the model.
Which of the following is NOT a problem associated with implementing fiscal policy. a. Policy lags b. Information lags c. Interest rate lags Od. Impact lags
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…
Fiscal Policy: End of Chapter Problem Examine what the "three difficulties with using fiscal policy" look like in real life. Categorize cach of the following three stories as either crowding out, magnitude, or a matter of timing. a. During a recession, the State of New York hires 1,000 new trash collectors. The state legislature in Albany takes six months to pass a law to hire the new trash collectors. Then, because of government rules and paperwork, the government actually hires the workers 18 months after the recession has begun. The difficulty is____________. b. During a recession, the State of New York hires 1,000 new trash collectors. Five hundred of the new trash collectors, however, were just people who quit their jobs as restaurant employees to take the better-paying trash collector jobs. The difficulty is_____________. c. During a recession, the State of New York hires 1,000 new trash collectors. However, during the course of the recession, 300,000 additional people…
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.
Identify each scenario as an example of expansionary fiscal policy, contractionary fiscal policy, or not an example of fiscal policy. a. An increase in the money supply is b. A decrease in taxes is fiscal policy. not an example of fiscal policy. a contractionary an expansionary d. An increase in tax rates is c. A decrease in the unemployment rate is fiscal policy. fiscal policy. f. A decrease in the money supply is e. A decrease in government spending is fiscal policy. fiscal policy. h. An increase in corporate bonds purchased is g. A decrease in transfer payments is fiscal policy. fiscal policy. i. An increase in government spending is fiscal policy.
Assume an economy that is operating above full employment. Draw a correctly labeled aggregate demand and aggregate supply graph and show each of the following: a. The long-run aggregate supply curve. b.Current price level and output levels, labeled PLe and Ye c. Full employment output, labeled Yf 2. Identify one fiscal policy action that could resolve the problem. 3. Using your graph in question 1, show the short-run effects of the action you identified on each of the following: a. Aggregate demand. Explain (use the cause and effect chain you learned in the lesson) b. Output c. Price Level 4. Using a correctly labeled loanable funds graph, show the effect of the policy you identified in question 2 on real interest rates. 5. Given the change in the real interest rate in question 4. What is the impact on each of the following? a. Investment…
What is fiscal imbalance? Fiscal imbalance is the _______ value of the government's commitments to pay benefits minus the _______ value of its tax revenues. A. future; future B. future; present C. present; future D. present; present