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AS AD₁ Full Employment 12 13 ions of dollars) mal GDP is AD₂ 15 16 AD trillion, and the initial short-run equilibrium price level is ployment, borrows money and increases its expenditures by the amount it believes ned lan fiscal policy, which curve in the previous graph will most likely be the new aggregat DP will be icy, which of the following is true in this case? government spending has no impact on real GDP and the price level. trillion, and the equilibrium price level will be

AS AD₁ Full Employment 12 13 ions of dollars) mal GDP is AD₂ 15 16 AD trillion, and the initial short-run equilibrium price level is ployment, borrows money and increases its expenditures by the amount it believes ned lan fiscal policy, which curve in the previous graph will most likely be the new aggregat DP will be icy, which of the following is true in this case? government spending has no impact on real GDP and the price level. trillion, and the equilibrium price level will be

Macroeconomics: Private and Public Choice (MindTap Course List)
Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter9: An Introduction To Basic Macroeconomic Markets
Section: Chapter Questions
Problem 15CQ
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On the following graph, AD, represents the initial aggregate demand curve in a hypothetical economy, and AS represents the initial aggregate supply curve. The economy's full-employment output is $12 trillion. PRICE LEVEL (CPI) 106 105 104 103 102 101 100 95 6 7 O AD 8 I AS AD Full Employment This is an example of 9 10 REAL GDP (Trillions of dollars) 12 13 14 15 The initial short-run equilibrium level of real GDP is As a result, the equilibrium level of real GDP will be AD₂ 16 Suppose the government, seeking full employment, borrows money and increases its expenditures by the amount it believes necessary to close the output gap. According to critics of Keynesian fiscal policy, which curve in the previous graph will most likely be the new aggregate demand curve? O AD₁ O AD₂ AD trillion, and the initial short-run equilibrium price level is trillion, and the equilibrium price level will be According to critics of Keynesian fiscal policy, which of the following is true in this case? O The increase in deficit-financed government spending has no impact on real GDP and the price level. O The increase in deficit-financed government spending causes real GDP to increase, but not to full-employment output. O The increase in deficit-financed government spending causes real GDP to increase to full-employment output. O Real GDP does not increase; only the price level increases.
Transcribed Image Text:On the following graph, AD, represents the initial aggregate demand curve in a hypothetical economy, and AS represents the initial aggregate supply curve. The economy's full-employment output is $12 trillion. PRICE LEVEL (CPI) 106 105 104 103 102 101 100 95 6 7 O AD 8 I AS AD Full Employment This is an example of 9 10 REAL GDP (Trillions of dollars) 12 13 14 15 The initial short-run equilibrium level of real GDP is As a result, the equilibrium level of real GDP will be AD₂ 16 Suppose the government, seeking full employment, borrows money and increases its expenditures by the amount it believes necessary to close the output gap. According to critics of Keynesian fiscal policy, which curve in the previous graph will most likely be the new aggregate demand curve? O AD₁ O AD₂ AD trillion, and the initial short-run equilibrium price level is trillion, and the equilibrium price level will be According to critics of Keynesian fiscal policy, which of the following is true in this case? O The increase in deficit-financed government spending has no impact on real GDP and the price level. O The increase in deficit-financed government spending causes real GDP to increase, but not to full-employment output. O The increase in deficit-financed government spending causes real GDP to increase to full-employment output. O Real GDP does not increase; only the price level increases.
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