Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Question
Chapter 14, Problem 8PA
(a)
To determine
The tax cut and its impact on the natural level of output.
(b)
To determine
The tax cut and its impact on the aggregate demand curve, short-run, and long-run
(c)
To determine
The tax cut and its short run impact on output and price level.
(d)
To determine
The tax cut and its long run impact on output and price level.
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Use the following graph to answer the next question.
Price Level
AS
AD3
AD₂
AD₁
ADO
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Q₁
Real GDP
In the diagram, Qf is the full-employment output. If the economy's current aggregate
demand curve is AD₁, it would be appropriate for the government to_
reduce government purchases and taxes by equal-size amounts.
reduce government purchases or increase taxes.
increase government purchases or reduce taxes.
reduce unemployment compensation benefits.
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Fiscal Policy
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LRAS
AS
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Real GDP (billions of dollars)
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- The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decides to conduct fiscal policy by changing taxes to bring inflation under control. Price Level Fiscal Policy 160 150 140 130 120 110 100 90 80 70 60 50 40 80 160 240 320 400 480 560 640 720 800 LRAS Real GDP (billions of dollars) AS AD₁ ADarrow_forwardGive examples of the factors that shift the Aggregate Demand Curve.arrow_forwardUse the model of aggregate demand ang aggregate supply (long run and short run) to explain the impact of the government's decision to increase government spending. Please create a detailed graph.arrow_forward
- The graphs illustrate an initial equilibrium for the economy. Suppose that the government increases spending. Use the graphs to show the new positions of aggregate demand (AD), short‑run aggregate supply (SRAS), and long‑run aggregate supply (LRAS) in both the short run and the long run, as well as the short‑run and long‑run equilibriums resulting from this change. Then, indicate what happens to the price level and real GDP (or aggregate output) in the short run and in the long run. Adjust the graph. explain the second image as well and which is right.arrow_forwardGive examples of the factors that shifts the Aggregate Supply Curve.arrow_forwardGive typing answer with explanation and conclusionarrow_forward
- If the government announces a decrease in spending with an increase in taxes, which of the following would most likely occur? a. a leftward shift of the aggregate demand curve b. a rightward shift of the aggregate demand curve c. an upward movement along the aggregate demand curve d. a downward movement along the aggregate demand curve e. no change in the aggregate demand curve as well as no movement along itarrow_forwardUse the following graph to answer the next question. In the diagram, Qf is the full-employment output. If the economy's current aggregate demand curve is AD1, it would be appropriate for the government to ___. reduce government purchases and taxes by equal-size amounts. reduce government purchases or increase taxes. increase government purchases or reduce taxes. reduce unemployment compensation benefits.arrow_forwardIf the government increases expenditures on goods and services and increases taxation by the same amount, which of the following will occur? A. Aggregate demand will be unchanged. B. Aggregate demand will increase. C. Interest rates will decrease. D. The money supply will decrease.arrow_forward
- Question 76 During the 2020 campaign, Joe Biden proposed raising income taxes on those earning more than $400,000 per year and raising corporate taxes from about 21 percent to 28 percent. Consider the aggregate demand-aggregate supply diagram below, which represents the macroeconomy. Suppose the market is initially at an equilibrium at point A. What effect will a tax increase have on this graph? Question 76 options: 1.The long-run aggregate supply curve will shift to the left. 2.The aggregate demand curve will shift to the right. 3.The aggregate demand curve will shift to the left. 4.The short-run aggregate supply curve will shift to the left. Question 77 During the 2020 campaign, Joe Biden proposed raising income taxes on those earning more than $400,000 per year and raising corporate taxes from about 21 percent to 28 percent. Consider the market for money illustrated in the figure below. Assume the market initially is in equilibrium at point A. What effect will the tax increase…arrow_forwardUsing the model of aggregate demand–aggregate supply to illustrate the traditional view,graphically compare the short-run and long-run impact of debt-financed tax cuts on:a. output.b. prices.arrow_forwardThere are three reasons the aggregate demand curve is downward sloping. What are they? Explain each reason!arrow_forward
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