4) Suppose an economy is producing real GDP of $600 billion. Potential GDP is equal to $540 billion, and the MPC is equal to 0.6. i)What kind of a gap (or problem) is this country experiencing? ii) What policy action do you suggest the government to take to eliminate the gap? State both the specific type of policy action and its size. Show your work for partial credit.

Assume the following to answer the following questions:  C= 1000+ .9 (Y-T) Tax rate = 0.1Y Imports = 0.1(Y-T) Government spending = 200 Investment = 300 Exports = 600 Potential Output = $8000 By how much must government spending increase or decrease to close this gap and bring the economy to Potential Output? Show your work

Do you think policy makers should attempt to stabilize the economy ? Why ?

This course is designed to provide an understanding of market economies and the fluctuations they are subject to.  With this in mind, please answer the questions that follow.   a)  Assume the economy is in a recession.  Discuss how the government could implement fiscal policy to deal with the recession and the steps by which fiscal policy moves the economy out of the recession b) Why is the shape of the aggregate supply curve important in understanding the impact of monetary and fiscal policy?

Fiscal policy: Fiscal policy refers to the use of government spending and taxation to influence the economy. In the case of a severe negative supply shock, the government may increase spending to stimulate demand and offset the reduction in supply. For example, the government may invest in infrastructure projects to create jobs and boost economic growth. However, this may lead to an increase in government borrowing and higher interest rates, which can offset the benefits of the fiscal stimulus. show this graphically please.

In the long-run framework, budget surpluses: Choose the Correct and Explain why its correct should be run whenever output dips below potential output. should never be run since they crowd out investment in the short run. are better than budget deficits over the long run because unlike budget deficits, they increase saving and investment. should be run on a permanent basis since they boost saving and investment and stimulate economic growth.

6. What change in government spending (airports, police, teachers, roads, etc.) would reestablish full employment with price stability? 7. What change in taxes would achieve the same goal? Explain why it is different from the change in government and is the opposite sign. 8. Should we balance the budget in this situation? And why? Q4. Suppose that in the closed economy of Keynesia, consumption is given by C = 100 + 0.75(Y -T). Investment I is constant at 200, government purchases G are 160, and the government’s budget is balanced so G = T. Aggregate supply responds passively to changes in demand, so Y = C+I+G. a. What is the marginal propensity to consume? b. Use algebra to find the equilibrium value of Y, the equilibrium level of income? c. If government spending rises to 180 with no change in taxes, what will happen to the Keynesian equilibrium level of income? What is the government-expenditure multiplier AY/AG? d. If taxes increase to 180 with no change in government spending, what…

Now consider an economy in which the government lowers its spending.  In the long run, the result would be _____________ in the price level and _____________ in real output. an increase; an increase a decrease; no change a decrease; a decrease None of the listed options is correct. no change; a decrease

What is ? 1-)Potential GDP 2-)Monetary Policy 3-)Fiscal Policy