Assume that the economy is currently producing at its potential output. Suppose the government decided to increase taxes to rein in consumer spending, but everything else in the economy remained the same. On the following graph, shift the aggregate demand curve (AD), the short-run aggregate supply curve (SRAS), or both to show the intended short-run effect of this fiscal policy on the economy. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. PRICE LEVEL SRAS AD 1 SRAS

Assume that the economy is currently producing at its potential output. Suppose the government decided to increase taxes to rein in consumer spending, but everything else in the economy remained the same. On the following graph, shift the aggregate demand curve (AD), the short-run aggregate supply curve (SRAS), or both to show the intended short-run effect of this fiscal policy on the economy. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. PRICE LEVEL SRAS AD 1 SRAS

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 4P

See similar textbooks

Similar questions

Explain, using the AD‐AS model, how the South African Government can use fiscal policy as a tool to recover from the negative effects of this COVID‐19 pandemic.Your answer must include the following:The description of the type of fiscal policy requiredAn explanation of how the implementation of this tool will work their waythrough the economy to achieve the desired effect;The AD‐AS graph showing the implications of your recommendations.
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by changing taxes to reduce the burden of this recession. Fiscal Policy Instructions: Enter your answer as a whole number. If you are entering a negatlve number Include a minus sign. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrilum? $, billion b. If the MPC is 0.6 , how much do taxes need to change to shift aggregate demand by the amount you found in part a? $, billion Suppose Instead that the MPC is 0.8 . c. How much does aggregate demand and taxes need to change to restore the economy to Its long-run equilibrlum? Aggregate demand needs to change by $ billion and taxes need to change by $ billion.
Suppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that a long strike by coal miners reduces the coal supply and increases the price of coal. Show the effects on your graph and label the new equilibrium point "2." Lastly, suppose our government wants the economy to return to full-employment as quickly as possible. Should the government intervene? If so, show the impact of successful fiscal policy on your graph. Label this new equilibrium point "3."
Assume an economy that is operating above full employment. Draw a correctly labeled aggregate demand and aggregate supply graph and show each of the following: The long-run aggregate supply curve. Current price level and output levels, labeled PLe and Ye Full employment output, labeled Yf a. Identify one fiscal policy action that could resolve the problem. b. Using your graph above, show the short-run effects of the action you identified on each of the following: Aggregate demand. Explain (use the cause and effect chain you learned in the lesson) Output Price Level c. Using a correctly labeled loanable funds graph, show the effect of the policy you identified in your resolution of the problem in section a on real interest rates. d. Given the change in the real interest rate in c. What is the impact on each of the following? Investment Economic growth rate. Explain The international value of the dollar. Explain. e. Now assume instead that the government takes no…
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by changing taxes to reduce the burden of this recession. Fiscal Policy Price Level 140 130 120 110 100 90 80 70 60 50 LRAS $ AS AD₁ 40 0 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) billion AD Instructions: Enter your answer as a whole number. If you are entering a negative number include a minus sign. a How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ b. If the MPC is 0.6, how much do taxes need to change to shift aggregate demand by the amount you found in part a? billion Suppose instead that the MPC is 0.92 c How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by S billion and taxes need to change by $[ billion.
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Fiscal Policy Price Level 180 LRAS AS 160 140 120 100 80 60 40 20 0 AD AD1 100 200 300 400 500 600 700 800 900 Real GDP (billions of dollars) (900, 120) Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to increase to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.75, how much does government purchases need to increase to shift aggregate demand by the amount you found in part a? $ billion Suppose instead that the MPC is 0.6. c. How much does aggregate demand and government purchases need to increase to restore the economy to its long-run equilibrium? Aggregate demand needs to increase by $ billion and government purchases need to increase by $ billion.
What is the impact of using Fiscal policy tools on an economy - more specifically aggregate demand and how can they be used to potentially assist (stimulate) an economy experiencing sluggish growth or in a recession. In your discussion, investigate the positive impacts, potential impact of lags, as well as other disadvantages associated with fiscal tools.
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Price Level 160 140 120 100 80 60 $ 40 20 0 Fiscal Policy LRAS AD₁ Real GDP (billions of dollars) billion AS 80 160 240 320 400 480 560 640 720 800 AD Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion O b. If the MPC is 0.8, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? Suppose instead that the MPC is 0.9. c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.
Suppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that an upcoming political election causes anxiety among consumers and consumption falls. Show the effects on your graph and label the new equilibrium point "2." Lastly, our government wants the economy to return to full-employment as quickly as possible. Should it intervene? If so, show the impact of successful fiscal policy on your graph. Label this new equilibrium point "3."
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. 160 Price Level 140 120 100 80 60 40 20 0 Fiscal Policy LRAS AS 80 160 240 320 400 480 560 640 720 800 AD AD₁ Real GDP (billions of dollars) billion Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.75, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? $ Suppose Instead that the MPC is 0.9. C. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.
Hide student question Time Left : Determine whether each of the following is an example of a situation in which a direct expenditure offset to fiscal policy occurs. a. In an effort to help rejuvenate the nation's railroad system, a new government agency buys unused track, locomotives, and passenger and freight cars, many of which private companies would otherwise have purchased and put into regular use. b. The government increases its expenditures without raising taxes. To cover the resulting budget deficit, it borrows more funds from the private sector, thereby pushing up the market interest rate and discouraging private planned investment spending. c. The government finances the construction of a classical music museum that otherwise would never have received private funding.
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Price Level 160 140 120 100 80 60 40 20 0 Fiscal Policy LRAS AD billion AS AD 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Enter your answers as a whole number. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? billion b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? Suppose Instead that the MPC is 0.5. c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $[ billion and government purchases need to change by $ billion.