This exercise points to a clear policy dilemma. A fiscal contraction may have desirable long-run effect on output and living standards, but the short-run effects are output and gap.

I got this one wrong, could you tell me the correct one? thank you

Consider the Keynesian Cross model. If the fiscal multiplier equals 2, and the government decides to increase government purchases by 100, by how much would equilibrium output increase?

Indicate how each policy in the following table would change either the aggregate demand curve or the aggregate supply curve. Policy Expansionary fiscal policy Contractionary fiscal policy Change in Aggregate Demand or Change in Aggregate Supply Demand-pull inflation Cost-push inflation

Given the aggregate demand function, AD = C+ I, + G +X - IM, a contractionary fiscal policy casues AD to do what? Shift to the left. Causes no shift. Cannot be determined. Shift to the right.

my choice is incorrect

a) Draw an aggregate demand/aggregate supply graph of an economy in a Recessionary situation. b) show clearly the GDP gap on your graph. c) examine the impact of the fiscal policy described above on the relevant components of AD and SRAS( if applicable). Account for the role of the autonomous spending multiplier.

Suppose the economy had been producing at potential output but is now experiencing a recession. Which of the following are discretionary fiscal policies that could bring the economy closer to potential output? Check all that apply. a)Additional spending on national park facilities   b)A tax hike   c)A reduction in government purchases   d)A tax cut

If a recession persists due to nominal wage and price stickiness (i.e., slow adjustment of nominal wages downward), what kind of fiscal policy can bring us out of this recession?     decreased government expenditures and increased taxes   increased government expenditures and decreased taxes   decreased government expenditures   contractionary fiscal policy

On the following graph, AD1 represents the initial aggregate demand curve in a hypothetical economy, and AS represents the initial aggregate supply curve. The economy's full-employment output is $12 billion. On the following graph, use the grey point (star symbol) to mark the equilibrium. (Note: You will not be graded on any adjustments made to the graph.) PRICE LEVEL (CPI) 106 105 104 103 102 H AS 1ŏ1 101 ADA 100 AD 3 99 AD 2 98 AD1 97 Full Employment 96 6 7 8 9 10 11 12 13 14 15 16 REAL GDP (Billions of dollars) Equilibrium (?)