The economy in Country X is in a recession, with real gross domestic product (GDP) $100 billion below full-employment output. (a) Draw one correctly labeled graph of the short-run and long-run Phillips curves, labeling the current equilibrium point A. (b) Assume that the government increases spending by $20 billion to stimulate economic activity. Assume that the marginal propensity to save is 0.25. Calculate the maximum total change in real GDP that could occur following the $20 billion increase in government spending. (c) On your graph in part (a), label the new equilibrium point B as a result of the increase in government spending. (d) Had the government lowered personal income taxes by $20 billion instead of increasing spending by $20 billion, would the maximum total change in real GDP be greater than, smaller than, or the same as the one calculated in part (b) ? Explain

181.In June 2008 Zimbabwe had the world's highest unemployment rate. A)True B)False 182.In the classical model of the price level, there is NO distinction between the short run and the long run. A)True B)False 183.The short-run aggregate supply curve is positively sloped because wages and prices are not all completely flexible. A)True B)False 184.The classical model of the price level is more accurate during low inflation than high inflation. A)True B)False 185.An inflation tax is the effect on the public of a reduction in the value of money caused by inflation. A)True B)False 186.An inflation rate of 5% will increase the purchasing power of $1 to $1.10. A)True B)False 187.It is impossible for the U.S. government to raise revenue by printing more money because the Federal Reserve, not the Treasury, issues most of the U.S. money supply. A)True B)False 188.People can avoid the inflation tax by…

A Keynesian economy is described by the following equations. Consumption                       Cd = 250 + 0.5(Y - T) - 250r Investment                           Id = 250 - 250r Government purchases       G = 300 Government taxes               T = 300 Real money demand            L = 0.5Y - 500r + πe Money supply                        M = 3000 Full-employment output   Y = 1250 Expected inflation             πe = 0 (HINT a: The expected rate of inflation is assumed to equal zero so that money demand depends directly on the real interest rate, which equals the nominal interest rate. Domestic Savings,  Sd =Y - C - G. In equilibrium set domestic savings equal to domestic investment, so Sd = Id) Calculate the values of the real interest rate (r), consumption (Cd), and investment (Id) for the economy in general equilibrium.

According to Keynesian analysis; the proper government response to a recession is _________,whereas an Austrian would support __________.A)expansionary fiscal/monetary policy; laissez-faireB)the implemention of a corporatist bailout of insolvent firms; raising taxesC)expansionary fiscal policy; expansionary monetary policyD)increasing government spending; increasing the legal powers of the central bank to deal withthe crisis