Part D and E Assume the economy is in long-run equilibrium in 2019. Use the Aggregate Demand and AggregateSupply Model (AS-AD) to show and explain the impact of the following changes in 2020:a. The pandemic in 2020 leads to required government shutdowns of non-essential businesseswhich results in high unemployment.b. The federal government responds with the largest fiscal stimulus package in history (CARESAct) which provides additional unemployment insurance, stimulus checks and subsidies forbusiness.C. The Federal Reserve uses monetary policy to cut interest rates to near zero to makeborrowing cheaper.d. International flights into the US are limited, decreasing the number of foreign touristsvisiting.e. What is the net impact of all four changes taken together?

Aggregate demand (AD): - It is total demand of goods and services in an economy at a particular…

Assume the economy is in long-run equilibrium in 2019. Use the Aggregate Demand and Aggregate Supply Model (AS-AD) to show and explain the impact of the following changes in 2020: a. The pandemic in 2020 leads to required government shutdowns of non-essential business which results in high unemployment. b. The federal government responds with the largest fiscal stimulus package in history (CARE Act) which provides additional unemployment insurance, stimulus checks and subsidies for business. C. The Federal Reserve uses monetary policy to cut interest rates to near zero to make borrowing cheaper. d. International flights into the US are limited, decreasing the number of foreign tourists visiting. e. What is the net impact of all four changes taken together?

Assume the economy is in long-run equilibrium in 2019. Use the Aggregate Demand and Aggregate Supply Model (AS-AD) to show and explain the impact of the following changes in 2020: a. The pandemic in 2020 leads to required government shutdowns of non-essential business which results in high unemployment. b. The federal government responds with the largest fiscal stimulus package in history (CARE Act) which provides additional unemployment insurance, stimulus checks and subsidies for business. C. The Federal Reserve uses monetary policy to cut interest rates to near zero to make borrowing cheaper. d. International flights into the US are limited, decreasing the number of foreign tourists visiting. e. What is the net impact of all four changes taken together?

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter12: Fiscal Policy, Incentives, And Secondary Effects

Section: Chapter Questions

Problem 8CQ

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Assume the economy is in long-run equilibrium in 2019. Use the Aggregate Demand and Aggregate Supply Model (AS-AD) to show and explain the impact of the following changes in 2020: a. The pandemic in 2020 leads to required government shutdowns of non-essential businesses which results in high unemployment. b. The federal government responds with the largest fiscal stimulus package in history (CARES Act) which provides additional unemployment insurance, stimulus checks and subsidies for business. C. The Federal Reserve uses monetary policy to cut interest rates to near zero to make borrowing cheaper. d. International flights into the US are limited, decreasing the number of foreign tourists visiting. e. What is the net impact of all four changes taken together?
6. 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 140 LRAS AS 130 120 110 100 90 80 70 AD 60 50 AD, 40 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) 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? 24 billion b. If the MPC is 0.8, how much do taxes need to change to shift aggregate demand by the amount you found in part a? Price Level
Instructions: Enter your answers as a whole number. B. 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 parta? $ billion Suppose instead that the MPC is 0.6. 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 $1 Price Level 160 140 120 100 80 60 40 20 0 LRAS (240,90) AD₁ billion. Real GDP (billions of dollars) AS AD 80 160 240 320 400 480 560 640 720 800
Construct 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.
Check my work mode: This shows what is correct o Ecives to conut ca puncy by changing lants to Fiscal Policy 140 LRAS AS 130 120 110 100 Price Level 90 80 70 60 50 AD, 40 0 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Enter your answer as a whole number if unu are < Pri AD
Look at Figure 2. Assume this aggregate demand diagram represents an economy with government, where: a = exogenous consumption b = the marginal propensity to consume t = the tax rate |= investment G = government spending Y = income Figure 2 Aggregate demand AD, AD. 45° Income What is the equation for the aggregate demand schedule ADo? Select one: O ADO = b+ a(1 - t)G +1+ Y O ADO = a + b(1 – 1)Y + 1+ G O ADO = a + b(1 - t) I+ Y+ G O ADO = b+ a(1 – 1)Y + /+ G Next page > ( Previous page PHILIPS
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 AD
Price Level 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? $ 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 equilibrium? Aggregate demand needs to change by $ 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 changing taxes to reduce the burden of this recession. Fiscal Policy Real GDP (billions of dollars) ig c The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy…
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 180 LRAS AS 160 140 120 100 80 60 40 AD 20 AD, 100 200 300 400 500 600 700 800 900 Real GDP (billions of dollars) Inctructions: Enter your answers as a whole number. Price Level
If the economy had been operating at a full- employment equilibrium, a. Describe the macroeconomic equilibrium after the rise in consumer spending. b. Explain and draw a graph to illustrate how the economy can adjust in the long run to restore a full-employment equilibrium. The magazine Women of China reported that Chinese women in big cities spent 63% of their income on consumer goods last year, up from a meager 26% in 2007. Clothing accounted for the biggest chunk of that spending, at nearly 30%, followed by digital products such as cell phones and cameras (11%) and travel (10%). Chinese consumption as a whole grew faster than the overall economy in the first half of the year and is expected to reach 42% of GDP by 2020, up from the current 36%.
Use the model of aggregate demand ang aggregate supply in explaining the impact of government's decision to increase government spending. Determine what will happen to the long run and short run levels of prices and output.
#2a: As you have learned consumer expectationsLinks to an external site. are a major driver of the short run path of the economy. Consumer spending accounts for about 68% of GDP and consumer sentimentLinks to an external site. is a major factor in shifting Aggregate Demand. Do you expect consumer confidence and business expectations to improve in the months ahead? Utilizing the equation GDP= C+I+G+ (X-M) from Chapter 6 what is your forecast for the way the AD curve will shift between now and the end of 2023? Explain. Do you anticipate a recession between now and the end of 2023?