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![Q.1. In the given figure, what does the gap 'KT'
represent? State and discuss any two fiscal
measures to correct the situation.
[AE]
Y-axis
Aggregate
Demand (AD)
45°
T
YF
AD (C+I+DI)
AD (C+I)
→ X-axis
Income](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F89ede905-70df-4ce5-9b42-b91a9517d163%2F092bb05f-35e2-4924-b71b-9054443f7832%2Frvxoehp_processed.jpeg&w=3840&q=75)
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- uèstion 21 pounts The economy is in a recession. The government enacts a policy to increase the real GDP by $10 billion. The MPS is 0.2. Assuming that the agggregate supply curve is horizontal across the range of GDP being considered, by how much should the government change spending or taxes in order to achieve its objective? Show your calculations. e For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). BIUS Paragraph Arial 10pt A v x X, Re v 55 OWORDS POWERED 図 田 lili 用explanation. Be sure to exp Assume the United States has been in another recession for the past 10 months. Unemployment is 10% and GDP has dropped $1.9 trillion from its previous peak of $ 20.8 trillion. The housing and heavy equipment industries have been hit the hardest. Inflation has been near the 2% target but has started to dip below. Also, the countries average MPC is 60. Determine the best fiscal policy/strategy to help the economy recover and explain why it is the best choice. Be sure to reference Aggregate Demand and Aggregate Supply and explain your specific tools in your answers. Calculations Explanation Graph (More space for the explanation on the back)Using the aggregate expenditures model, answer the questions below to show how government fiscal policy could eliminate either a recessionary expenditure gap or an inflationary expenditure gap. Full employment 6000 Tools 5000 Gap 54000 AE, 3000 $2000 1000 45° 1000 2000 3000 4000 5000 6000 Real GDP (billions of dollars) a. Given that full employment exists at $4,500 billion, does a recessionary gap or an inflationary gap exist? (Click to select) b. Identify this gap using the diagram above. Instructions: (1) Use the tool provided 'Gap' to show this expenditure gap. The tool will display a two- ended arrow. Drag one end of the arrow to the lowest value of the expenditure gap and drag the other end to the highest value of the gap. c. What is the dollar amount of the expenditure gap? | billion Aggregate expenditures (billions of dollars)
- Suppose equilibrium GDP is less than full-employment output and the economy is in a recession. What are the appropriate fiscal policies that would take the economy to full employment level? A) Increase Taxes B) Decrease governmnet spending C) Lower transfer payments D) Decrease Taxes16. If consumers in a country spend 4/5 of their disposable income. If their governmentdecreases its spending by 55 trillion and in order to maintain a balanced budgetsimultaneously decreases taxes by 55 trillion. Calculate the effect of the 55 trillion change ingovernment spending and 55 trillion change in taxes on the country’s aggregate demand.Question 15/28 IV A BOOKMARK 15 MULTIPLE SELECT: If the government decides to utilize a contractionary fiscal policy, which of the following actions can it take? Pick all that apply. A Tax cuts B Tax increases C Spending cuts D Spending increases DELL esc Ce @ # $ % & 1 2 3 4 7 e r y k S f g. C V b m 个 N
- With reference to 'Automatic Fiscal Stabilisers (AFS) Define what you understand by the term Automatic Fiscal Stabilisers and provide an explanation as to how 'Automatic Fiscal Stabilisers may work within the UK economy. What would be the problems that may arise when automatic stabilisers begin to take effect. Use diagrams if needed.NEXT A BOOKMARK Question 12/28 to stimulate the economy. 2 During a recession, the government can engage in A Expansionary fiscal policy B Cautionary fiscal policy Contractionary fiscal policy D Deflationary fiscal policy DELL esc -> # 2$ & 1 4 6. 8. 9. * 00 司 5Which of the following statementsabout how fiscal policy should mostappropriately be used in a crisis iscorrect? a. If fiscal policy is usedappropriately, a fiscal deficitshould appear duringrecessionary gaps and asurplus during inflationary gaps b. Fiscalpolicy should be used at anyand all points of the cycle toaccelerate growth c. None of these statements iscorrect d. If fiscal policy is usedappropriately, a fiscal surplusshould appear duringrecessionary gaps and a fiscaldeficit during inflationarygaps
- Explain/discuss the three possible sources of an increased government deficit in the model of equilibrium GDP.If the spending multiplier is 10, a S100 increase in government spending and Sl00 increase in taxes, will cause a inerease in GDP by 0 100 900 $1,0003. What is fiscal equalization? Give an example
