Chapter 12: Aggregate Demand II: Applying the IS-LM ModelQuestion: In the IS-LM model, changes in taxes affect aggregate demand via:O a.the interest rate.O b.government spending.C.investment.Od Money supplyconsumption. Chapter 14: Aggregate Supply and the Short-Run Tradeoff Between Inflation and UnemploymentQuestion: The basic aggregate supply equation implies that output exceeds natural output when theprice level is:O a. low.O b. high.O c.the same as expected price levelgreater than the expected price level.e.less than the expected price level.

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Chapter 12: Aggregate Demand II: Applying the IS-LM Model Question: In the IS-LM model, changes in taxes affect aggregate demand via: O a. the interest rate. b. government spending. O c. investment. d. Money supply consumption.

Chapter 12: Aggregate Demand II: Applying the IS-LM Model Question: In the IS-LM model, changes in taxes affect aggregate demand via: O a. the interest rate. b. government spending. O c. investment. d. Money supply consumption.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter22: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 1P

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What is a potential problem with a temporary tax increase designed to increase aggregate demand it people know that it is temporary?
The IS-LM model is often used to explain economic fluctuations and the impact of government monetary and fiscal policies.(a) Explain the definition of the IS curve and the LM curve. Use pictures to make your explanation easier.(b) Explain how the transmission of fiscal and monetary policy in influencing national income.(c) Explain how to derive the Aggregate Demand curve using the IS-LM model framework.
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.
Construct an Aggregate Supply and Aggregate Demand model where AS and AD are in equilibrium at potential GDP at a price level of 110 and Real GDP of $13.0 trillion dollars. Be sure to label all parts of the graph. a. Graph the initial effects of a recession that causes AD to decrease and real GDP to fall $0.5 trillion. b. Explain what will happen in the long run if nothing is done. c. If the government wanted to intervene in the economy, explain the Fiscal Policy measures that can be used to bring real GDP back to potential.
You are hired by the Council of Economic Advisors (CEA) as an economic consultant.The chairperson of the CEA tells you that she believes the current unemployment rate istoo high. The unemployment rate can be reduced if aggregate output increases. She wantsto know what policy to pursue to increase aggregate output by 300 billion TL. The bestestimate she has for the MPC is 0.8. Which of the following policies should yourecommend?a) Increase government purchases by 75 billion TL.b) Reduce taxes by 75 billion TL.c) Reduce taxes by 75 billion TL and to increase government purchases by 75 billion TL.d) Reduce the budget deficit by 300 billion TL
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Fiscal policy is used to shift AD. The outcome depends on the shape of the AS curve - whether AS is upward sloping, vertical or horizontal. It follows that a right shift in aggregate demand will cause no change in price level or output if AS is upward sloping. higher price level, but not higher output if AS is vertical. higher price level, but no change in output if AS is horizontal. higher output, but no change in price level if AS is vertical.
Which of the following statements about Fiscal Policy is INCORRECT (a) In order to combat inflation, the South African Reserve Bank must apply a contractionary fiscal policy; (b) A contractionary fiscal policy can result in higher levels of unemployment; (c) Expansionary fiscal policy will increase the budget deficit; (d) The application of fiscal policy will have no effect on aggregate supply in the AD‐AS model. If the inflation rate is 6% and Susan receives a 6% increase in income, then, over the year, Susan’s: (a) Real and nominal income both remain unchanged; (b) Real and nominal income both rise; (c) Real income rises but nominal income remains unchanged; (d) Nominal income rises but real income remains unchanged. Given the import function, Z = 300 + 2/3Y, which of the following statements is correct? The marginal propensity to save is 1/3; The induced component is 300; 2/3 is the proportion of any income spent on imports; None of…
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An economy is in long-run macroeconomic equilibrium when each of the following aggregate demand shocks occurs. What kind of gap - inflationary or recessionary - will the economy face after the shock, and what type of fiscal policies would help move the economy back to potential output? How would your recommended fiscal policy shift the aggregate demandcurve? (Note: you do not need to draw anything).(a) A stock market boom increases the value of stocks held by households.(b) Firms come to believe that a recession in the near future is likely.(c) Anticipating the possibility of war, the government increases its purchases of military equipment.(d) The quantity of money in the economy declines and interest rates increase.
The US Government is facing major budget deficit deciding between implementing fiscal and monetary policy to boost output back to potential output. In the presence of expectations, using the IS-LM model graph the effects on the US economy from a contractionary fiscal policy? What would happen if this change is perceived as permanent by investors? Graph and explain. What would happen if the government was perceived as wasteful? Graph and explain.
18 - : If aggregate demand increases in an economy while aggregate demand is constant in the short run, which of the following statements is correct for the new equilibrium point?A) price decreases and national income increasesB) price rises national income risesC) price increases and national income does not changeD) price goes up and national income goes downE) price decreases and national income decreases.19 - : In which of the following expressions is the equation of change given correctly?A) MV=VK B) MT=PV C) MV=PT D) MP=VY E) MV=P