Macroeconomics (MindTap Course List)
10th Edition
ISBN: 9781285859477
Author: William Boyes, Michael Melvin
Publisher: Cengage Learning
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Chapter 10, Problem 5E
To determine
Draw a graph representing a hypothetical economy in a recession. Label the two axis, the 45 degree line, the AE curve, and the equilibrium level of the real
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The graph shows an economy that has experienced a fall in total spending. What is the long run output level in this economy? (Answer in trillions of $.) $_____
Identify the direction of the change during a recession in each of the following: consumption expenditures, investment expenditures, and unemployment.
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.
Chapter 10 Solutions
Macroeconomics (MindTap Course List)
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- The Aggregate Expenditure Model is traditionally called the” Keynesian Cross”. Use the Aggregate Expenditure Keynesian Cross diagram to show what happens to the economy under the following conditions: (Note that is different from the AS-AD Model.) What happens in the model if government expenditures are increased (G↑)? What happens if taxes are raised (T↑)? What happens to the US economy if the rest of the world experiences economic growth and imports more US goods (X↑)?arrow_forwardConsumption spending was $150$150 billion, investment spending was $40$40 billion, government spending was $50$50 billion, spending on exports was $42$42billion, and spending on imports was $35$35 billion. The price level increases, resulting in a decline in investment spending by 30%30%. Consumption spending decreases by 10%10%.If other factors stay at the same level, determine aggregate demand after the price level increased. Enter your answer in the box below.arrow_forwardIf the aggregate expenditure line shifts in response to a decrease in real wealth, describe the process of moving back to equilibrium.arrow_forward
- In order to break stagflation, the government has to increase expenditure on food subsidies in the form of food vouchers, unemployment benefits or allowances, wages subsidy to increase household consumption expenditure and boost up the AD. With increased consumption expenditure, aggregate demand will rise, which would send a signal to the aggregate supply (AS) to raise production. This will create a positive effect, which will bring the economy out of recession. Show this in a graph.arrow_forwardSuppose MPC = 0.8 and government spending increases by 1 trillion dollars. In the AD-AS equilibrium, the effect on real GDP will be?arrow_forwardDiscuss characteristics of an economy that helps itself correct from a recessionary gap.arrow_forward
- Please answer the question: * the attached photo is for you to see that it is connected to the question * If current real GDP is P700 billion, which of the following policies would bring the economy to potential output? a. decrease taxes by P100 billion b. increase taxes by P100 billion c. decrease taxes by P25 billion d. increase taxes by P25 billionarrow_forwardCompare and contrast the effect of expansion and recession on selected variables like output and employment.arrow_forwardAn economy is at full employment. Which of the following events can create a recessionary gap? A.An increase in foreign income. B.An increase in government spending. C.An increase in taxes. D.A decrease in nominal wages.arrow_forward
- consumption boom: Using the IS-MP diagram, explain what happens to theeconomy if there is a temporary consumption boom that lasts for one period.arrow_forwardNigeria is currently experiencing a recessionary gap of approximately 24.6 billion krone. Its MPC is approximately 0.8. How much would the government have to change spending to close the gap? Assume a horizontal SRAS. If the government should decrease spending, enter a negative answer. one decimal plarrow_forwardNigeria is currently experiencing a recessionary gap of approximately 24.6 billion in their currency. Its MPC is approximately 0.8. How much would the government have to change taxes to close the gap? Assume a horizontal SRAS. If the government should decrease taxes, enter a negative answer. one decimal placearrow_forward
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