Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 26.A, Problem 2SQP
(a)
To determine
Economy in equilibrium with recessionary gap.
(a)
To determine
Long-run equilibrium.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
consider that our recent recession seems to demonstrate that expenditures and incomes depend on each other. If markets do not self-adjust, how can a decline in spending lead to a negative process that ruins an economy? (Consider implications of gaps in the "Keynesian Cross" and/or the "Aggregate Demand/Aggregate Supply Diagram" to illustrate your points.)
When in macroeconomics an economy ‘overheats’ it is observed that aggregate demand exceeds national income at the full employment output level. Within a ‘Keynesian cross’ framework this overheating is described as which of the following:
(a) A Goldilocks effect;
(b) A hyperinflation;
(c) A recessionary gap;
(d) An inflationary gap
Please illustrate the correct answer via a diagram.
f you believe that Keynes is right and prices are sticky in the short-run, then
You would draw your Short-Run Aggregate Supply curve with a steep negative slope
You would draw your Short-Run Aggregate Supply curve as a horizontal line
You would draw your Short-Run Aggregate Supply curve with a steep positive slope
You would draw your Keynesian Cross graph so that your planned expenditures line has a slope equal to the Marginal Propensity to Consume
Two of the answers are correct
Chapter 26 Solutions
Economics For Today
Ch. 26.3 - Prob. 1.1YTECh. 26.3 - Prob. 2.1YTECh. 26.3 - Prob. 2.2YTECh. 26.A - Prob. 1SQPCh. 26.A - Prob. 2SQPCh. 26.A - Prob. 3SQPCh. 26.A - Prob. 4SQPCh. 26.A - Prob. 1SQCh. 26.A - Prob. 2SQCh. 26.A - Prob. 3SQ
Ch. 26.A - Prob. 4SQCh. 26.A - Prob. 5SQCh. 26.A - Prob. 6SQCh. 26.A - Prob. 7SQCh. 26.A - Prob. 8SQCh. 26.A - Prob. 9SQCh. 26.A - Prob. 10SQCh. 26.A - Prob. 11SQCh. 26.A - Prob. 12SQCh. 26.A - Prob. 13SQCh. 26.A - Prob. 14SQCh. 26.A - Prob. 15SQCh. 26 - Prob. 1SQPCh. 26 - Prob. 2SQPCh. 26 - Prob. 3SQPCh. 26 - Prob. 4SQPCh. 26 - Prob. 5SQPCh. 26 - Prob. 6SQPCh. 26 - Prob. 7SQPCh. 26 - Prob. 8SQPCh. 26 - Prob. 9SQPCh. 26 - Prob. 10SQPCh. 26 - Prob. 11SQPCh. 26 - Prob. 12SQPCh. 26 - Prob. 1SQCh. 26 - Prob. 2SQCh. 26 - Prob. 3SQCh. 26 - Prob. 4SQCh. 26 - Prob. 5SQCh. 26 - Prob. 6SQCh. 26 - Prob. 7SQCh. 26 - Prob. 8SQCh. 26 - Prob. 9SQCh. 26 - Prob. 10SQCh. 26 - Prob. 11SQCh. 26 - Prob. 12SQCh. 26 - Prob. 13SQCh. 26 - Prob. 14SQCh. 26 - Prob. 15SQCh. 26 - Prob. 16SQCh. 26 - Prob. 17SQCh. 26 - Prob. 18SQCh. 26 - Prob. 19SQCh. 26 - Prob. 20SQ
Knowledge Booster
Similar questions
- Respond to the following in a minimum of 175 words: Explain the shape of aggregate demand curve. How do Classical and Keynesian economists differ in their view of the aggregate supply curve? Discuss how the economy returns to equilibrium in response to changes in aggregate demand (AD) and aggregate supply (AS) in both the short run and long run.arrow_forwardIn 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_forwardConstruct an Aggregate Supply and Aggregate Demand model where AS and AD are in equilibrium at potential GDP at a price level of 110 and Real GDP of $13.0 trillion dollars. Be sure to label all parts of the graph. a. Graph the initial effects of a recession that causes AD to decrease and real GDP to fall $0.5 trillion. b. Explain what will happen in the long run if nothing is done. c. If the government wanted to intervene in the economy, explain the Fiscal Policy measures that can be used to bring real GDP back to potential.arrow_forward
- The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $600 billion. Suppose firms become pessimistic about future business conditions and cut back on investment spending. Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the business pessimism. In the short run, the decrease in investment spending associated with business pessimism causes the price level to (rise above/fall below) the price level people expected and the quantity of output to (rise above/fall below) the natural level of output. The business pessimism will cause the unemployment rate to (rise above/fall below) the natural rate of unemployment in the short run. Again, the following graph shows a hypothetical economy experiencing long-run equilibrium at the expected price level of 120 and natural output level of $600 billion, prior to the…arrow_forwardAccording to classical economic theory, which of the following describes the potential long-run self-correction of the economy depicted in the graph above? a. Consumption will come out of its stagnation and shift AD to the right, bringing output back to full employment levels. b. Wage rates will increase, attracting labor back to full employment levels ans increasing output back to its natural rate. c. Long-run aggregate supply will shift left due to decreases in spending and restore long-run equilibrium. d. Nominal wages will decrease as the duration of unemployment extends, eventually shifting short-run aggregate supply to the right, bringing output back to its natural level. e. Economies do not self-correct.arrow_forwardHow do Keynesians and classicals differ in their beliefs about how long it takes the economy to reach long-run equilibrium? What implications do these differences in beliefs have for Keynesian and classical views about the usefulness of antirecessionary policies? About the types of shocks that cause most recessions?arrow_forward
- If markets do not self-adjust, how can a decline in spending lead to a negative process that ruins an economy? (Consider implications of gaps in the "Keynesian Cross" and/or the "Aggregate Demand/Aggregate Supply Diagram" to illustrate your points.)arrow_forwardIn an effort to increase output in the short run due to the poor economy, government officials have decided to cut taxes. They are considering two possible temporary tax cuts of equal size in terms of lost revenue. The first would reduce the taxes on people with incomes above $100,000 per year. The second would cut taxes on people with incomes below $60,000 for one year. Which change would have a greater impact on aggregate spending (i.e shift the aggregate demand curve further to the right)? Why?arrow_forwardThe school of thought that emphasizes the natural tendency for an economy to move toward a full-employment equilibrium is known as thea. Keynesian school.b. supply-side school.c. noninterventionist school.d. classical school.arrow_forward
- Keynesian economics predicts that if government policy makers deem current equilibrium real Gross Domestic Product (GDP) to be "too low," then an appropriate policy action would be to do nothing, because the economy is self-adjusting. raise government spending, thereby increasing aggregate demand and pushing up real Gross Domestic Product (GDP) with little or no inflationary consequences. increase taxes, thereby causing aggregate demand to increase and inducing a rise in real Gross Domestic Product (GDP) with little or no inflationary consequences. reduce the money stock, thereby causing aggregate demand to decrease and inducing a rise in fall in the price level that generates an increase in total planned expenditures.arrow_forwardWhich of the following best differentiates the Keynesian View from the Classical View? The Classical View contains a SRAS curve while the Keynesian View does not include a SRAS curve. The Classical View only pertains to the short run while the Keynesian View only pertains to the long run. The Classical View only pertains to the long run while the Keynesian View pertains to both the short run and the long run. The Classical View contains an aggregate demand curve while the Keynesian View does not.arrow_forwardThe country of Merryville has an unemployment rate that is greater than the natural rate of unemployment. Using a correctly labeled graph of aggregate demand and aggregate supply, show the current equilibrium real gross domestic product, labeled YC, and price level in Merryville, labeled PLC. The president of Merryville is receiving advice from an economic adviser who advises the president to decrease personal income taxes. How would such a decrease in taxes affect aggregate demand? Explain. The government of Merryville increases spending on goods and services by $200 billion, which is financed by borrowing. If the marginal propensity to consume in Merryville is 0.75: Calculate the multiplier What is the maximum possible change in real gross domestic product (GDP) that could result from the $200 billion increase in government spending?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Macroeconomics: Principles and Policy (MindTap Co...EconomicsISBN:9781305280601Author:William J. Baumol, Alan S. BlinderPublisher:Cengage Learning
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Macroeconomics: Principles and Policy (MindTap Co...
Economics
ISBN:9781305280601
Author:William J. Baumol, Alan S. Blinder
Publisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning