Question 6 Suppose that an economy is currently in its long run equilibrium. Suppose that the government decides to increases government spending. Being concerned about the budget implications, it also raises the income tax rate to maintain a balanced budget. Using the AD-AS model, explain the impact of this policy on the economy in the: A. Short Run B. Long Run
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- What impact would a decrease in the size of the labor force have on GDP and the puce level according to the AD/AS model?Assume that an economy is initially operating at the natural rate of output (full employmentoutput). Use the AD-AS model to illustrate graphically the effects on price and output of anincrease in government spending. Explain your assumptions with respect to the range ofaggregate supply of your analysis.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).
- Assume that an economy is initially operating at the natural rate of output (full employmentoutput). Use the AD-AS model to illustrate graphically the effects on price and output of areduction in government spending. Explain your assumptions with respect to the range ofaggregate supply of your analysis.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.Assume that an economy is initially operating at the natural rate of output (full employmentoutput). Use the AD-AS model to illustrate graphically the effects on price and output of areduction in government spending. Explain your assumptions with respect to the range ofaggregate supply of your analysis. Note: the previous answer is not quite satisfactory. can you please relate the aggregate supply with the decling of government expenditure. thank you
- Question 2Assume that an economy is initially operating at the natural rate of output (full employmentoutput). Use the AD-AS model to illustrate graphically the effects on price and output of anincrease in government spending and a decrease in the cash rate. Explain your assumptionswith respect to the range of aggregate supply of your analysis.Draw a set of AD-AS Model(linear) graphs showing recessionary gap and an inflationary gap. Explain what happens to both graphs in the long-run without government intervention.Explain , using the AD - AS model , government can use fiscal policy as a tool to recover from the negative effects of this COVID - 19 pandemic. Should include the folllowing : -The description of the type of fiscal policy required - Explaination on how the implementation of this tool will work their way through the economy to achieve the desired effect
- 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. In this model, if lthere is an increse in both labor productivity and the marginal propensity to consume while autonomus expenditures remain unchanged, what will happen to the level of employment? a. can't say for sure b. decreses c. stays the same d. increases6.1.What is an AD-AS model and what does such a model as per the givendiagram essentially focus on?6.2.Discuss the diagram in detail by first explaining what leads to step Step 1(representing a shift in curves on the diagram) and indicating what occursto cause shifts in some of the curves. Then discuss Step 2 (whichrepresents other macroeconomic changes) and indicate what happens toother variables when there are shifts in some of the curves as per Step 1. 6.3.What, in general, do the points of intersection between the AS and AS2curves and the AD curve show?6.4.When the LAS curve moves to the right to LRAS2, what exactly do thepoints of intersection between the AS and AS curves and the AD1 curve,indicated as point 1 and point 2, reflect on the diagram?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. 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