The aggregate economy of India has a rate of money growth equal to 7. Initially the velocity of money is not changing. The long-run aggregate supply curve equals =2 But then there is a banking panic, causing the growth rate of the velocity of money to fall to -6 percent per year. In the absence of government intervention, the resulting recession would last for 3 years (meaning it would grow at the recession growth rate for 3 years, then return to long-run equilibrium after that). Assume that just before the recession started, India's level of GDP was equal to $100 billion. Your boss has proposed that the government should step in and use fiscal policy to end the recession immediately. But Raj Kumar, a member of the opposition, has claimed that fiscal policy is too expensive, and anyways there is no reason to end the recession because it will end on its own. To counter his argument, your boss has asked you to calculate how much lower GDP would be by the end of the recession if the government does not act. Enter your answer in billions of dollars, rounded to 1 decimal place. (For example, you should enter 3.5 if India's GDP will be 3.5 billion dollars lower by not ending the recession.)

The aggregate economy of India has a rate of money growth equal to 7. Initially the velocity of money is not changing. The long-run aggregate supply curve equals =2 But then there is a banking panic, causing the growth rate of the velocity of money to fall to -6 percent per year. In the absence of government intervention, the resulting recession would last for 3 years (meaning it would grow at the recession growth rate for 3 years, then return to long-run equilibrium after that). Assume that just before the recession started, India's level of GDP was equal to $100 billion. Your boss has proposed that the government should step in and use fiscal policy to end the recession immediately. But Raj Kumar, a member of the opposition, has claimed that fiscal policy is too expensive, and anyways there is no reason to end the recession because it will end on its own. To counter his argument, your boss has asked you to calculate how much lower GDP would be by the end of the recession if the government does not act. Enter your answer in billions of dollars, rounded to 1 decimal place. (For example, you should enter 3.5 if India's GDP will be 3.5 billion dollars lower by not ending the recession.)

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter20: Economic Growth

Section: Chapter Questions

Problem 21RQ: List some arguments for and against the likelihood of convergence.

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