Price Level 150 130 110 90- 70 460 480 500 520 540 560 580 600 Real GDP a. If potential GDP (LAS) is $545, and the economy is presently in equilibrium, then there is a(n) recessionary billion. b. In order to close this gap aggregate demand must increase by $ 25 billion. gap of $ 25 c. If every $1 change in government spending leads to a $4 change in aggregate demand, government spending must increase by $ 6.25 billion. d. Suppose that initially government had a balanced budget. If government increases its spending as in part (c) and tax revenues are 0.2 of real GDP, what will be the government's real budget surplus/deficit at full-employment equilibrium? The government budget would have a deficit of $ 6.24 billion.

Price Level 150 130 110 90- 70 460 480 500 520 540 560 580 600 Real GDP a. If potential GDP (LAS) is $545, and the economy is presently in equilibrium, then there is a(n) recessionary billion. b. In order to close this gap aggregate demand must increase by $ 25 billion. gap of $ 25 c. If every $1 change in government spending leads to a $4 change in aggregate demand, government spending must increase by $ 6.25 billion. d. Suppose that initially government had a balanced budget. If government increases its spending as in part (c) and tax revenues are 0.2 of real GDP, what will be the government's real budget surplus/deficit at full-employment equilibrium? The government budget would have a deficit of $ 6.24 billion.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section11.A: Graphical Treatment Of Taxes And Fiscal Policy

Problem 2TY

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Exercise D24 Compare two policies: a tax cut on income or an increase in government spending on roads and bridges. What are both the short-term and longâ€”term impacts of such policies on the economy?
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