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

In this question, we assume Canada is a closed economy and is in its long-run equilibrium. TransCanada announced that they will not proceed with the East Energy pipeline in October 2017.  According to the long-run classical model, what happens to the equilibrium levels of output, real interest rate, and investment in Canada after TransCanada made this announcement? What happens to the real wage in Canada? Explain your answer with the aid of TWOdiagrams - one for the loanable funds market and one for the labour market.

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.

The Keynesian model suggests that .... should be preferred over .... since the ..... is larger than the ..... a. fiscal policy / monetary policy / unplanned changes in inventories / marginal propensity to consume. b. fiscal policy / monetary policy / impact of money supply / marginal propensity to consume. c. government sprending / tax cuts / tax multiplier / government-spending multiplier. d. government sprending / tax cuts / government-spending multiplier / tax multiplier. e. monetary policy / fiscal policy / impact of money supply / marginal propensity to consume.

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

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The following equations describe a Keynesian model of a closed economy:         C = 500 - 0.5(Y - T) - 100r         I = 350 - 100r         L = 0.5Y - 200i         πe = 0.05         G = T = 200          Y = 1850         M = 3560   a. Find the full-employment equilibrium values of the real interest rate, consumption, investment, and the price level.   b. Suppose government purchases decline to 175, with no change in taxes. What happens to the real interest rate, output, consumption, and investment in the short run (in which the price level is fixed)? What happens in the long run to the real interest rate, consumption, investment, and the price level?   c. Suppose instead that government purchases rise to 225, with no change in taxes, starting from the equilibrium in part (a). What happens to the real interest rate, output, consumption, and investment in the short run (in which the price level is fixed)? What happens in the long run to the real interest rate, consumption, investment, and…

In the Keynesian framework, which of the following events might cause a reaction ? a) A large increase in the price of the homes people own b) Rapid growth in the economy of a major trading partner c) The development of a major new technology offers profitable opportunities for business d) The interest rate rises e) The good imported from a major trading partner becomes much less expensive

If a recessionary gap occurs in the short run, then in the long run a new equilibrium arises when input prices and expectations adjust downward, causing the short-run aggregate supply curve to shift downward and to the right and pushing equilibrium real GDP per year back to its long-run value. The Federal Reserve can eliminate a recessionary gap in the short run by undertaking a policy action that increases aggregate demand. Which of the following is one monetary policy action that could eliminate the recessionary gap in the short run? A. The Fed can increase the money supply through an open market purchase of Treasury securities. B. The Fed can lower taxes. C. The Fed can increase the money supply through an open market sale of Treasury securities. D. The Fed can decrease the money supply through an open market purchase of Treasury securities.

In the 1960s the U.S entered the Vietnam War,  and military expenditures (part of government expenditures) grew from an annual rate of $113 billion  to 138 billion. The economy was near full-employment and, therefore, given there was no offsetting tax increase, inflation pressures emerged. Assume the MPC is .75 C)  With the AD Excess at $150 billion in 1968, what change in taxes would you have recommended?  D)  How would an increase in income/transfer payments of $150 billion have affected  AD ? Have