Last three questions please! 2. The economy of Newland is in short-run macroeconomic equilibrium. The current real output is $400billion, and the full employment output is $500 billion. The marginal propensity to consume is 0.8.(a) is the economy experiencing a recessionary output gap or an inflationary output gap?Explain.(b) Assume Newland's government is considering taking action to close the output gap identified in part(a).(i) Calculate the minimum change and indicate the direction of change in government spending requiredto shift the aggregate demand curve to close the output gap. Show yourwork.(ii) If instead Newland's government changes income taxes without changing government spending,calculate the minimum change and indicate the direction of change in income taxes required to shift theaggregate demand curve to close the output gap. Show yourwork.(c) Which fiscal policy action, changing government spending or changing income taxes, is moreeffective in closing the output gap?Explain.1(d) Assume instead Newland's government decides not to take any policy action. Will short-runaggregate supply increase, decrease, or stay the same in the long run? Explain.

Short-run macroeconomic equilibrium occurs when the economy produces at its current level of output…

(ii) If instead Newland's government changes income taxes without changing government spending, calculate the minimum change and indicate the direction of change in income taxes required to shift the aggregate demand curve to close the output gap. Show your work. (c) Which fiscal policy action, changing government spending or changing income taxes, is more effective in closing the output gap? Explain. (d) Assume instead Newland's government decides not to take any policy action. Will short-run aggregate supply increase, decrease, or stay the same in the long run? Explain.

(ii) If instead Newland's government changes income taxes without changing government spending, calculate the minimum change and indicate the direction of change in income taxes required to shift the aggregate demand curve to close the output gap. Show your work. (c) Which fiscal policy action, changing government spending or changing income taxes, is more effective in closing the output gap? Explain. (d) Assume instead Newland's government decides not to take any policy action. Will short-run aggregate supply increase, decrease, or stay the same in the long run? Explain.

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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