You are given the following information about the Aggregate Demand and Aggregate Supply in an economy of Gombakland. Amount of real domestic output demanded, billions Price level (price index) Amount of real domestic output supplied, billions $ 60 350 $240 120 300 240 180 250 180 240 200 120 300 150 60 a) Assuming the full-employment level of GDP is $220 billion, identify and describe the type of macroeconomic problem currently faced by Gombakland. Draw an appropriate diagram with correct labels to support your answer. b) Given that the marginal propensity to consume (MPC) for Gombakland is 0.5, calculate the required change in government spending which would be most consistent with closing the GDP-gap. Then calculate the required change in taxation as an alternative policy to achieve the same result. Explain your answer and show the effect of this policy intervention in the same diagram you have drawn in part (a).

You are given the following information about the Aggregate Demand and Aggregate Supply in an economy of Gombakland. Amount of real domestic output demanded, billions Price level (price index) Amount of real domestic output supplied, billions $ 60 350 $240 120 300 240 180 250 180 240 200 120 300 150 60 a) Assuming the full-employment level of GDP is $220 billion, identify and describe the type of macroeconomic problem currently faced by Gombakland. Draw an appropriate diagram with correct labels to support your answer. b) Given that the marginal propensity to consume (MPC) for Gombakland is 0.5, calculate the required change in government spending which would be most consistent with closing the GDP-gap. Then calculate the required change in taxation as an alternative policy to achieve the same result. Explain your answer and show the effect of this policy intervention in the same diagram you have drawn in part (a).

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 42CTQ: On a microeconomic demand curve, a decrease in price causes an increase in quantity demanded because...

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Suppose the economy is operating at potential GDP when It experiences an increase in export demand. How might the economy increase production of exports to meet this demand, given that the economy is already at full employment?
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Amount of real domestic output demanded, billions	Price level (price index)	Amount of real domestic output supplied, billions
$ 60	350	$240
120	300	240
180	250	180
240	200	120
300	150	60