The following graph shows a hypothetical economy that uses the dollar as its currency. The economy is in short-run equilibrium at an output level of300 billion and a price level of 60. Suppose that the economy's potential output is $200 billion.Use the purple line (diamond symbols) to plot the long-run aggregate supply (LRAS) curve on the graph.120100SRASAD80SRASLRASAD20100200300400500600REAL GDP (Index numbers)This economy's output ispotential output. To restore the economy to its potential, the government could usev fiscal policyShift either the AD curve or the SRAS curve to illustrate the changes consistent with the chosen government policySuppose that the marginal propensity to consume in this economy is 0.80. Assume, for simplicity, that there are no taxes or other factors that couldalter the multiplier effect of a change in government expenditures.The economy's expenditure multiplier is , which means that the government must alter its expenditures byto restore outputto potential output.PRICE LEVEL (Bilions of dollars)

The aggregate supply and demand in the economy determine the macroeconomic equilibrium in that…

Answered: The following graph shows a…

Macroeconomics: Principles and Policy (MindTap Course List)

13th Edition

ISBN:9781305280601

Author:William J. Baumol, Alan S. Blinder

Publisher:William J. Baumol, Alan S. Blinder

Chapter10: Bringing In The Supply Side: Unemployment And Inflation?

Section: Chapter Questions

Problem 3TY

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According to the Congressional Budget Office's projections, real GDP in 2007 was marginally higher than real potential GDP. If potential GDP is correctly assessed, then during that period : (A) the economy was on its long run aggregate supply curve. (B) the economy was to the left of its long run aggregate supply curve. (C) the economy was slightly to the right of its long run aggregate supply curve.
Why the aggregate demand curve slopes downward The graph below shows the aggregate demand (AD) curve for a hypothetical economy. At point X, the quantity of output demanded is $300 billion, and the price level is 140. Moving down along the AD curve from point X to point Y, the quantity of output demanded rises to $500 billion, and the price level falls to 120. As the price level falls, the cost of borrowing money will (REMAIN THE SAME or RISE or FALL), causing the quantity of output demanded to (REMAIN THE SAME or RISE or FALL). This phenomenon is known as the (EXCHANGE RATE or INTEREST RATE or WEALTH) effect. Additionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar to (RISE or FALL) in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore (RISE or FALL or REMAIN THE SAME), and the number of foreign products purchased by domestic consumers and firms (imports)…
The following graph shows the aggregate demand curve in a hypothetical economy. Assume that the economy's money supply remains fixed.
State whether each of the following transactions is a part of aggregate demand in the United States, and whether it is C, I, G, X, or IM. a. David buys a keyboard synthesizer made in the United States b. A Japanese automaker buys stock in an American auto company c. A Japanese automaker builds an assembly plant in Illinois d. Will buys a compact disc player made in Japan e. Dieter, a German resident, buys frozen chickens that were raised in the United States f. The U.S. government sends an insurance check to Renee, an unemployed keypunch operator.
Briefly explain how each of the following events would affect the aggregate demand curve a) higher interest rates b) faster income growth in other countries c) an increase in the value of the U.S dollar relative to foreign currencies
Following an increase in consumer confidence, the US economy is experiencing a significant increase in aggregate spending. Using a correctly labeled aggregate demand and aggregate supply diagram, show how the change in aggregate spending will affect each of the following in the short run -Output -The price level
Use an aggregate demand and supply diagram to illustrate and explain how each of the following will affect the equilibrium price level and the real GDP. Describe and analyze the new situation (inflationary gap, recessionary gap, stagflation). How should the situation be rectified in order to return to full employment?• Consumers expect a recession• Foreign income rises• Foreign price levels fall• Government spending increases• Workers expect high future inflation and negotiate higher prices now• Technological improvement increase productivityQUESTION: How should the situation be rectified in order to return to full employment?
The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $600 billion. Suppose firms become pessimistic about future business conditions and cut back on investment spending. Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the business pessimism. In the short run, the decrease in investment spending associated with business pessimism causes the price level to (rise above/fall below) the price level people expected and the quantity of output to (rise above/fall below) the natural level of output. The business pessimism will cause the unemployment rate to (rise above/fall below) the natural rate of unemployment in the short run. Again, the following graph shows a hypothetical economy experiencing long-run equilibrium at the expected price level of 120 and natural output level of $600 billion, prior to the…
State whether each of the following transactions is a part of aggregate demand in the United States, and whether it is C, I, G, X, or IM. a. Will buys a compact disc player made in Japan b. Dieter, a German resident, buys frozen chickens that were raised in the United States c. The U.S. government sends an insurance check to Renee, an unemployed keypunch operator.

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