When the Covid-19 pandemic hit along with the associated shut-downs, what happened to AD (ignoring any government fiscal policy for this question)? AD increased. AD decreased. OAD was unchanged. We moved along the AD curve to the right.
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- (a) As a response to the recent COVID-19 outbreak, the Commonwealth Government put in place lockdown restrictions. Using the dynamic AD-AS framework, analyse and demonstrate the impact of the COVID-19 pandemic on the level of output (or real GDP), unemployment, and inflation. (b) In response to the COVID-19 pandemic, in March 2020 the Commonwealth Government announced a fiscal stimulus which included income support for workers and businesses hit by the pandemic. Using the same dynamic AD-AS framework used in part (a), explain and illustrate the effect of the fiscal stimulus on the level of output (or real GDP), unemployment, and inflation. (c) Using the same dynamic AD-AS framework used in part (b), show what the impact of the fiscal stimulus would have been if Australia had no interactions in trade or finance with other economies (i.e. if Australia was a closed economy).Finally, so can you summarize and contrast what you think happened to Agg. Demand during 2020 versus 2021 (better define Agg Demand)? (covid pandemic)Determine whether the ad or as curve with shift with each scenarios below. Each situation is independent of each other. 1- a increase in the personal income tax rate. AD or AS 2-an increase in government spending 3-decrease in resource prices 4-decrease in subsidies for businesses 5-decrease in interest rates
- 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).In the 1960s the U.S entered the Vietnam War, and military expenditures (part of government expenditures) grew from an annual rate of $113 billion to 138 billion. The economy was near full-employment and, therefore, given there was no offsetting tax increase, inflation pressures emerged. Assume the MPC is .75 A) How did the increase in military expenditures affect AD? B) If in 1968 the AD Excess was $150 billion, what change in government expenditures would you have recommended?Using the AE model, show the economy in equilibrium. Then, show the impact of an increase in taxes to reduce inflation.Would the above be considered expansionary or contractionary fiscal policy? Assume the change in taxes above is $15 billion dollars and MPC = .90. What will be the change in GDP?
- Based on the AD-AS framework, carefully explain how the fiscal stimulus would affect the following variables in the short run: household consumption, business investment, real GDP, price level. You may include a well-labeled diagram to support your analysis.Suppose actual real GDP is $7.54 trillion, potential real GDP is $12.32 trillion, and the marginal propensity to consume is 0.62. If we ignore price effects, by how many trillions of dollars should the government change its spending to fix the gap? (Round this to two digits after the decimal and enter this value as either a positive value or a negative value without the dollar sign.)In the AD/AS model, the multiplier magnifies the effect of autonomous spending, for example government spending, on the budget deficits aggregate demand tax receipts potential GDP
- "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.In a Keynesian model, why would a $100 million increase in government expenditure on goodsand services have a greater impact on aggregate demand than a $100 million reduction in taxrevenue?A Consumers spend only part of any extra disposable income.B Government expenditure does not create wealth.C The marginal tax rate affects the value of the multiplier.D The multiplier does not apply to consumer expenditure.What would you recommend the federal government due to close our current recessionary output gap? Use the AD-AS model, The class readings on fiscal policy and the descriptive details contained in the July 22, 2020 article from the economist titled “Congress and COVID-19” to describe your policy proposals.
