Price Level LRAS SRAS 108 100 90 ADT ADo AD2 16.4 17.4 18.2 Real GDP $T 1. If the actual price level is 108, what type of gap is the economy experiencing? What is the size c this gap? 2. If the Federal Reserve tries to close this gap, and the required reserve ratio is 10%, how much w the Fed have to increase/decrease (circle one) the money supply? 3. The Fed's primary method for closing the above gap will be by buying/selling (circle one) U.S. Treasury securities.

Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter25: Money, Banking, And The Federal Reserve System
Section: Chapter Questions
Problem 24P
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Question 3
Price Level
LRAS
SRAS
108
100
AD1
90
ADo
AD2
16.4 174
18.2
Real GDP $T
1. If the actual price level is 108, what type of gap is the economy experiencing? What is the size of
this gap?
2. If the Federal Reserve tries to close this gap, and the required reserve ratio is 10%, how much will
the Fed have to increase/decrease (circle one) the money supply?
3. The Fed's primary method for closing the above gap will be by buying/selling
(circle one) U.S. Treasury securities.
4. Now, if the actual price level is 90, what kind of gap is the economy experiencing?
What is the size of this gap?
5. If the mpc is 0.6, how much will congress have to increase/decrease (circle one) spending to close
this gap?
Transcribed Image Text:Price Level LRAS SRAS 108 100 AD1 90 ADo AD2 16.4 174 18.2 Real GDP $T 1. If the actual price level is 108, what type of gap is the economy experiencing? What is the size of this gap? 2. If the Federal Reserve tries to close this gap, and the required reserve ratio is 10%, how much will the Fed have to increase/decrease (circle one) the money supply? 3. The Fed's primary method for closing the above gap will be by buying/selling (circle one) U.S. Treasury securities. 4. Now, if the actual price level is 90, what kind of gap is the economy experiencing? What is the size of this gap? 5. If the mpc is 0.6, how much will congress have to increase/decrease (circle one) spending to close this gap?
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