Price Level P₁ LRAS Y* AD Real GDP AS for Tools Fiscal Action NGO a. How does the short-run equilibrium compare to the initial equilibrium? The price level has (Click to select) and output has [(Click to select) b. What is the primary concern of policy makers under these conditions? O high unemployment O declining value of the dollar O high Inflation c. What policy action might the government take in order to improve economic conditions? (Click to select) fiscal policy by (Click to select)taxes and/or (Click to select)government purchases V

Price Level P₁ LRAS Y* AD Real GDP AS for Tools Fiscal Action NGO a. How does the short-run equilibrium compare to the initial equilibrium? The price level has (Click to select) and output has [(Click to select) b. What is the primary concern of policy makers under these conditions? O high unemployment O declining value of the dollar O high Inflation c. What policy action might the government take in order to improve economic conditions? (Click to select) fiscal policy by (Click to select)taxes and/or (Click to select)government purchases V

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter20: Monetary Policy

Section20.A: Policy Disputes Using The Self Correcting Aggregate Demand And Supply Model

Problem 3SQP

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Consider a closed economy, where wages are sticky in the short run. The consumption function isC = c0 + c1(Y − T ), where the marginal propensity to consume c1 is equal to 0.75. Initially the economy is in equilibrium at Y = Y* and P = P e, where P e is the price level that was expected when agents agreed their fixed nominal wage contracts. The short-run aggregate supply curve (SRAS) is horizontal. Suddenly the government increases government spending G by $500. 1. By how much will output Y change (compared to its initial level before the change in G) in the long run, after wage contracts are renegotiated? 2. By how much will consumption C change (compared to its initial level before the change in G) in the long run, after wage contracts are renegotiated? 3. By how much will investment I change (compared to its initial level before the change in G) in the long run, after wage contracts are renegotiated?
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