Answered: Using the AD/AS model construct two…

Using the AD/AS model construct two graphs that show how a recession can occur? Explain how discretionary fiscal or monetary policies can be used to moved the economy out of recession?

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter9: Classical Macroeconomics And The Self Regulating Economy

Section: Chapter Questions

Problem 5WNG

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Question

Using the AD/AS model construct two graphs that show how a recession can occur? Explain how discretionary fiscal or monetary policies can be used to moved the economy out of recession?

Definition Definition Policy implemented by the central bank of a country (such as the Federal Reserve in the United States) to achieve certain macroeconomic objectives. Monetary policy is a supply-side macroeconomic policy that supervises the growth rate and money supply in the economy.

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Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayeks idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce?
question 1: In Figure 1 , how does the AD-AS model reflect the idea that governments cannot increase real GDP beyond an economy’s equilibrium level that the free-market economy is able to produce? Explain your answer.
Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayek’s idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce? Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not?
"Tax cuts are more effective in generating the economy when the economy is in recession compared to at full employment." True or False? Show and explain your answer based on the AD-AS model.
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Using the AD-AS framework, demonstrate the impacts of spending on infrastructure and a tax cut on output and inflation in the short- run.
In the AD/AS model, what prevents the economy from achieving equilibrium at potential output?
Using the AD-AS model, which of the following statement better describe what has happened with the pandemic? a. The government discouraged people from engaging in economic activities, which shifted the AD curve left; meanwhile, the government forced the closure of most of the firms in the economy, which shifted the short-run AS curve left, leading to much lower production in the overall economy. b. The government discouraged people from engaging in economic activities, which shifted the AD curve left; meanwhile, the government forced the closure of most of the firms in the economy, which shifted the short-run AS curve left, leading to a lower natural rate of output in the overall economy. c. The government discouraged people from participating in economic activities, which shifted the AD curve right, causing a higher price level for the firm to produce more goods and services. Hence, the short-run aggregate supply shifts to the left, leading to much lower…
Using the AD-AS model, if consumers and business become more optimistic about the future direction of the economy and increase spending, then: a-long-run aggregate supply will decrease. b-aggregate demand will decrease. c-aggregate demand will increase. d-long-run aggregate supply will increase.
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