If the economy depicted in this graph is in short-run macroeconomic equilibrium at E₁, it is in a(n): Aggregate LRAS price level SRAS P1 E1 debt spiral. recessionary gap. inflationary gap. liquidity trap. Yp Y1 potential output AD Real GDP
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- Consider an economy described by the following set of equations: c = 120 +0.08Y I = 320 G = 480 X-IM = -80 T = 400 a. Find the actual level of GDP. b. If full employment comes at Y = 1000, would there be a recessionary gap or an inflationary gap? c. What spending changes will be necessary to eliminate this gap? d. What amount of tax changes will be necessary to eliminate this gap? e. What are some policies action that can be taken.Calculate the total change in aggregate spending if investment decreases by $250 billion and the marginal propensity to consume is 0.9. Instructions: Enter your response as a whole number. Aggregate demand decreases by $ ________billion.Macroeconomics: Assuming marginal propensity to consume is 0.5. If there is a shock to the economy that increases investment spending by 200 billion dollars what will the total Change to GDP be? (Ignore taxes and imports)
- 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.Nigeria is currently experiencing a recessionary gap of approximately 24.6 billion krone. Its MPC is approximately 0.8. How much would the government have to change spending to close the gap? Assume a horizontal SRAS. If the government should decrease spending, enter a negative answer. one decimal plAssume that the marginal propensity to consume is 0.6 and potential output is $1000 billion. If real GDP is $1100 billion: Select one: a. there is an inflationary gap. b. the economy is in long-run equilibrium. c. there is a recessionary gap. d. government transfers should be decreased.
- 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).The economy of Newland is in short-run macroeconomic equilibrium. The current real output is $400 billion, and the full employment output is $500 billion. The marginal propensity to consume is 0.8. (a) Is the economy experiencing a recessionary output gap or an inflationary output gap? Explain. (b) Assume Newland’s government is considering taking action to close the output gap identified in part (a). (i) Calculate the minimum change and indicate the direction of change in government spending required to shift the aggregate demand curve to close the output gap. Show your work. (ii) If instead Newland’s government changes income taxes without changing government spending, calculate the minimum change and indicate the direction of change in income taxes required to shift the aggregate demand curve to close the output gap. Show your work. (c) Which fiscal policy action, changing government spending or changing income taxes, is more effective in closing the output gap? Explain. (d)…If the marginal propensity to consume (MPC) = 0.80 and for every $10 change in G, I decreases by $4. If the economy faces a recessionary gap of $700 billion, then government purchases (G) changes by x amont to solve the gap. solve for x amount in billions
- Suppose the marginal propensity to consume is 0.6. Use the Keynesian Cross model to predict the impact on equilibrium income of each of the following policies. State the direction of the change and give a formula for the size of the impact. a. an increase in government purchases of $100billion b. an increase in taxes of $100 billion c. a $100 billion increase in both government purchases and taxes?Consider an economy described by the following equations:Y=C+I+GC=100+0.75(Y-T)I=500-50rG=125T=100wher Yis GDP,C is consumpton,I is investment,G is government purchases,T is taxes,and r is the interest rate.If the economy were at full employment that is , at its natural rate,GDP would be 2,000.a.Explain the meaning of each of these equations.b.What is the marginal propensity to consume in this economy?c.Suppose the central bank's policy is to adjust the money supply to maintain the interest rate at 4 percent,so r=4.Solve for GDP.How does it compare to the full employment level?d.Assuming no change in monetary policy,what change in government purchases would restore full employment?e.Assuming no change in fiscal policy,what change in interest rate would restore full employment?The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decides to conduct fiscal policy by decreasing government purchases to restore full-employment GDP. Instructions: Enter your answer as a whole number. If you are entering a negative number include a minus sign. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ -160 Numeric ResponseEdit Unavailable. -160 incorrect. billion b. If the MPC is 0.9, how much do government purchases need to change to shift aggregate demand by the amount you found in part a? $ billion Suppose instead that the MPC is 0.8. 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.
