If the economy exhibited an inflationary gap, the government should follow a(n). policy, which would shift the AD curve to the and O inflationary; left; decrease unemployment. O expansionary; right; increase unemployment. inflationary; left; increase unemployment. =====
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- Which school of economic thoughts suggests that the speed of adjustment for self-correction to potential GDP would be very quick?O. monetarismO. Keynesian economicsO. supply-side economicsO. rational expectations theoryAll else equal, a decline in price of inputs across the economy — such as labor — causes 6) A) Rightward shift of aggregate demand [AD] and a higher real GDP [Y] B) Leftward shift of aggregate supply [AS] and a lower Y C) Rightward shift of AS and a higher Y D) Leftward shift of AD and deflationConsider a keynesian macromodel Y=(C0+G+I) / (1-c) where C0 is autonomus consumption, G is government consumption expenditure, I is investment expenditure, c is the marginal propensity to consume. In this model, if labor productivity increases while autonomus expenditures and the marginal propensity to consume remain unchanged, what will happen to the level of employment? a. increseas b. can't say for sure c. decreases d. stays the same
- 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.Assume a Keynesian AS curve. In the short run, when there is a large negative output gap (AD-AS intersection far to the left of the full employment level of output), then 1.expansionary demand management policy is likely to be highly inflationary 2.expansionary demand management policy does not cause much inflation 3.the government should use contractionary demand management policy 4.contractionary demand management policy is likely to be highly inflationaryAssume the following information for an economy: Natural level of output = $190b Autonomous consumption = 50 Total investment = 16 Government expenditure = 19 Autonomous taxation = 20 Marginal propensity to consume = 0.6 Based on this information answer the following questions: a) Calculate the actual equilibrium level of output for this economy. b) Calculate the output ratio for the economy. c) Using the Phillips Curve illustrate the current approximate position for the economy and identify this as point A. d) Assume the government increased spending by $5b. Calculate what the new equilibrium level of output will be. e) As a result of d) indicate how this will likely impact the economy using the Phillips Curve model from c). Label the new position the economy will approximately be at as point B. f) Discuss whether the government actions in d) are consistent with the objectives of economic stablisation. Include within your discussion reference to what…
- Read the following excerpts. Identify whether the policy action is fiscal or monetary and expansionary or contractionary. Draw and label the change that would occur on the ADAS graph as a result of the policy action described in each. Identify what will happen as a result of the policy to the price level, employment, and real GDP. Excerpt from Public Law 103-66 of the 103rd Congress: Signed into law by President Clinton August 10, 1993 “To provide for reconciliation pursuant to section 7 of the concurrent resolution on the budget for fiscal year 1994. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled. Title XIII: Revenue, Health Care, Human Resources, Income Security, Customs and Trade, Food Stamp Program, and Timber Sale Provisions …Subchapter B: Revenue Increases - Increases the marginal tax rate for certain higher incomes. Imposes a surtax on certain higher incomes. Sec. 13203 Increases the tentative minimum tax for…Consider a keynesian macromodel Y=(C0+G+I) / (1-c) where C0 is autonomus consumption, G is government consumption expenditure, I is investment expenditure, c is the marginal propensity to consume. Assume constant marginal productivity of labor. What will be the result of an increasing government consumption expenditure in this module, if not other paramiters are changed? a. Lower investment. b. Higher employment. c. Higher inflation. d. Lower employement.Why do permanent tax cuts have a greater impact on consumption than temporary tax cuts? a. Permanent tax cuts affect expectations of long-run income more than temporary tax cuts. b. Permanent tax cuts cause movement along the consumption function, while temporary tax cuts shift the consumption function. c. Permanent tax cuts have a greater effect on expected long-run inflation. d. Permanent tax cuts are perceived as minor while temporary tax cuts are larger and more effective.
- (13) In the Keynesian Cross model, AE = Y is known as the __________________________ __________________________.Consider a keynesian macromodel Y=(C0+G+I) / (1-c) where C0 is autonomus consumption, G is government consumption expenditure, I is investment expenditure, c is the marginal propensity to consume. Assume constant marginal productivity of labor. What assumption does this model make about production? a. Higher spending leads to higher inflation b. Higher saving is required to raise output c. Production always adjusts to match expenditure d. Higher investment raises its productivityWhich 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…
