Need help with this. Thanks! I provided the possible answers also. Consider the hypothetical economy depicted on the graph. Initially, the economy operates below full-employment output at a price level of 100 and realGDP of $740 billion. Then aggregate demand (AD) increases from AD₁ to AD₂, moving the economy up along the intermediate and classical ranges ofthe aggregate supply (AS) curve. Real GDP increases to the full-employment output level of $770 billion, and the price level increases to 115.PRICE LEVEL (CPI)13012512011511010510095908580700 710720AS730 740 750 760 770 780REAL GDP (Billions of dollars)ADAD₂790 800 demand pull/ cost pushThe increase in aggregate demand from AD₁ to AD₂ causesSuppose the marginal propensity to consume (MPC) is 0.75. The government wants to avoid the double-digit inflation associated with the shift fromAD₁ to AD₂. The lowest possible price level associated with full-employment output is 105. To achieve a price level of 105 and full-employment output,the government must enact a fiscal policy that reduces aggregate demand by $20 billion at each price level.decrease/increaseinflation.To reduce aggregate demand by $20 billion, the government can3.3/5/6.7/10/12.5government expenditures by billion $If the government wants to use a change in tax policy instead to reduce aggregate demand by $20 billion, it should3.3/5/6.7/8.8/12 billion $increase/decreasetaxes by

demand-pull inflation alludes to inflation in the economy brought by consumer demand wherein total…

Consider the hypothetical economy depicted on the graph. Initially, the economy operates below full-employment output at a price level of 100 and real GDP of $740 billion. Then aggregate demand (AD) increases from AD₁ to AD₂, moving the economy up along the intermediate and classical ranges of the aggregate supply (AS) curve. Real GDP increases to the full-employment output level of $770 billion, and the price level increases to 115. PRICE LEVEL (CPI) 130 125 120 115 110 105 100 95 90 85 80 700 710 AS 720 730 740 750 760 770 REAL GDP (Billions of dollars) 780 AD₁ AD₂ 790 800 ?

Consider the hypothetical economy depicted on the graph. Initially, the economy operates below full-employment output at a price level of 100 and real GDP of $740 billion. Then aggregate demand (AD) increases from AD₁ to AD₂, moving the economy up along the intermediate and classical ranges of the aggregate supply (AS) curve. Real GDP increases to the full-employment output level of $770 billion, and the price level increases to 115. PRICE LEVEL (CPI) 130 125 120 115 110 105 100 95 90 85 80 700 710 AS 720 730 740 750 760 770 REAL GDP (Billions of dollars) 780 AD₁ AD₂ 790 800 ?

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

See similar textbooks

Similar questions

Suppose the economy is in a recessionary gap. (the economy is not self-regulating and consider upward sloping SRAS) If government spending increases by $30,000 but private investment reduces by $25,000 at the same time, will increase in government purchase lead the economy to long run equilibrium in goods and service market? Why or why not? Explain with AD-AS graph.
Q4. Consider an economy having following values of Consumption, Investment, Government Spending, and Taxes. C = 200 + 0.7Yd I = 300 G= 500 T = 150 Derive the aggregate demand equation. Also, calculate the output in an economy
Explain, using the Keynesian approach to measuring aggregate demand, the economic impact that a discovery of a precious resource such as oil will have on aggregate spending and total production (income) for an economy. Kindly answer the question.. Asap
Question: How does the concept of aggregate demand relate to overall economic output, and what factors can influence changes in aggregate demand? A) Aggregate demand represents the total wealth of a nation and is unaffected by external factors. B) Aggregate demand is the total spending in an economy and includes consumption, investment, government spending, and net exports; factors like changes in consumer confidence can influence it. C) Aggregate demand solely considers government spending and is unrelated to economic output. D) Aggregate demand is the total production in an economy and is determined solely by government policies.
The country of Merryville has an unemployment rate that is greater than the natural rate of unemployment. Using a correctly labeled graph of aggregate demand and aggregate supply, show the current equilibrium real gross domestic product, labeled YC, and price level in Merryville, labeled PLC. The president of Merryville is receiving advice from an economic adviser who advises the president to decrease personal income taxes. How would such a decrease in taxes affect aggregate demand? Explain. The government of Merryville increases spending on goods and services by $200 billion, which is financed by borrowing. If the marginal propensity to consume in Merryville is 0.75: Calculate the multiplier What is the maximum possible change in real gross domestic product (GDP) that could result from the $200 billion increase in government spending?
State what economic policies (fiscal AND monetary) should be enacted to stabilize the economy. Clearly state your reasons for choosing these policies. What the results of these economic policies look like in the short-run and long-run. In this section, include an AD-AS Model graph that shows the results of your recommended economic policies.
Considering the growing potential threat of terrorists’ attacks worldwide, the President of an economyapproved a fiscal spending of $24 billion to upgrade its national defense. a. Starting in a long-run equilibrium, draw a well-labelled AD-SRAS-LRAS diagram for the economy. b. Use the same diagram in part (a) to show the SR effect on the economy’s GDP (Y), the price level, andunemployment when the federal government increases its spending on national defense. c. To stabilize the price level and the economy’s GDP, what kind of monetary policy should the economyadopt? Illustrate your answer in the same diagram in (a).
Differentiate the macroeconomic effects that explain the causes of the differences of government spending in aggregate demand. Give a wider explanation.
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
An economy’s aggregate demand is specified as follows: C = 300 + 0.8Yd, Investment (Io) = 230, Taxes (T) = 120 + 0.2Y, Government final purchase = 400, Export (X) =240 and Import (M) = 400. Find the equilibrium national income? Find the value of the injections in this economy iii. How much withdrawals are when the economy is in equilibrium?
The graph shows an economy's aggregate supply and potential GDP. On the graph, draw an aggregate demand curve when the economy is at an above full-employment equilibrium. Label it AD . Draw a point at the above full-employment equilibrium. Draw a horizontal arrow at the equilibrium price level that shows the gap between actual real GDP and potential GDP. >>> Draw only the objects specified in the question.
Use an aggregate demand and supply diagram to illustrate and explain how each of the following will affect the equilibrium price level and the real GDP. Describe and analyze the new situation (inflationary gap, recessionary gap, stagflation). How should the situation be rectified in order to return to full employment?• Consumers expect a recession• Foreign income rises• Foreign price levels fall• Government spending increases• Workers expect high future inflation and negotiate higher prices now• Technological improvement increase productivityQUESTION: How should the situation be rectified in order to return to full employment?