ECONOMICS:PRIN.+POLICY-MINDTAP (1 TERM)
14th Edition
ISBN: 9781337912396
Author: Baumol
Publisher: CENGAGE L
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Chapter 25, Problem 3DQ
To determine
Check whether the economy is facing an inflationary gap or a recessionary gap.
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Chapter 25 Solutions
ECONOMICS:PRIN.+POLICY-MINDTAP (1 TERM)
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- Assume that the economy has an inflationary gap. Explain how the economy will remove this gap without government intervention. Use graphs to illustrate your answer. (Provide graph)arrow_forwardQ)Please explain how you can tell if the economy is in equilibrium? How could you estimate the real GDP gap? Explain your answer in ONE PAGE(3 paragraphs/ 5 sentences each) please.arrow_forwardIf an inflationary gap exists, what will happen to business inventories? How will producers respond?arrow_forward
- If the economy is in equilibrium, how can a recessionary gap exist, and how will producers respond to this gap?arrow_forwardSuppose most business executives expect a slowdown in the economy. How might this situation affect the economy? Give at least 2 suggestions.arrow_forwardSuppose that a decrease in the demand for goods and services pushes the economy into recession. What happens to the price level? If the government does nothing, what ensures that the economy still eventually gets back to the natural rate of output?arrow_forward
- Finally, so can you summarize and contrast what you think happened to Agg. Demand during 2020 versus 2021 (better define Agg Demand)? (covid pandemic)arrow_forwardCompare and contrast the effect of expansion and recession on selected variables like output and employment.arrow_forwardUsing an AD-AS diagram, explain what happens if personal income taxes increase.arrow_forward
- Are people necessarily worse off when the price level rises at the same rate as their income?arrow_forwarda) About Country A, what is your estimate of the country's marginal propensity to consume (MPC) based on the following information on its GDP (Y) and the components thereof (in billion dollars) for two past years? Show calculation. Year 1 Year 2 c) GDP C I 11200 8000 2200 12000 8500 2400 G 800 880 The next few parts are about Country B, whose government plans to cut taxes by $24 billion as a measure to fight the current recession. The marginal propensity to consume (MPC) in Country B is known to be 34. There will be no crowding-out effect. e) NX 200 220 b) What is the initial effect (in billion dollars) of the tax cut on Country B's aggregate demand? (The "initial effect" here refers to the effect on AD after only the first round of increased spending.) What is the total effect of the tax cut on aggregate demand? Explain why it is different from the initial effect. d) How does the total effect of this $24 billion tax cut compare to the total effect of a $24 billion increase in…arrow_forwardWhat are inflationary and recessionary gaps in the economy? How do they impact the economy?arrow_forward
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