Sub-part
A
The real GDP and actual price level when the actual price level exceeds the expected price level.
Concept Introduction:
Expansionary Gap: Expansionary Gap is the gap between actual output and potential output under full employment situation, when actual output is more than potential output.
Recessionary Gap: Recessionary Gap is the gap between actual output and potential output under full employment situation, when actual output is less than potential output.
Sub-part
B
The expansionary and recessionary Gap when the actual price level exceeds the expected price level.
Concept Introduction:
Expansionary Gap: Expansionary Gap is the gap between actual output and potential output under full employment situation, when actual output is more than potential output.
Recessionary Gap: Recessionary Gap is the gap between actual output and potential output under full employment situation, when actual output is less than potential output.
Sub-part
C
The real GDP and actual price level when the actual price level is lower than the expected price level.
Concept Introduction:
Expansionary Gap: Expansionary Gap is the gap between actual output and potential output under full employment situation, when actual output is more than potential output.
Recessionary Gap: Recessionary Gap is the gap between actual output and potential output under full employment situation, when actual output is less than potential output.
Sub-part
D
The expansionary and recessionary Gap when the actual price level is lower than the expected price level.
Concept Introduction:
Expansionary Gap: Expansionary Gap is the gap between actual output and potential output under full employment situation, when actual output is more than potential output.
Recessionary Gap: Recessionary Gap is the gap between actual output and potential output under full employment situation, when actual output is less than potential output.
Sub-part
E
The real GDP and actual price level when the actual price level equals the expected price level.
Concept Introduction:
Expansionary Gap: Expansionary Gap is the gap between actual output and potential output under full employment situation, when actual output is more than potential output.
Recessionary Gap: Recessionary Gap is the gap between actual output and potential output under full employment situation, when actual output is less than potential output.
Sub-part
F
The expansionary and recessionary Gap when the actual price level is equal to the expected price level.
Concept Introduction:
Expansionary Gap: Expansionary Gap is the gap between actual output and potential output under full employment situation, when actual output is more than potential output.
Recessionary Gap: Recessionary Gap is the gap between actual output and potential output under full employment situation, when actual output is less than potential output.
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Chapter 10 Solutions
Econ Macro (book Only)
- (Short Run) Suppose the Travis virus has spread across the globe including to the Concerto economy. Use a macroeconomic model and its relevant diagrams that explain short-run economic fluctuation to answer the following questions: a. What happens to Concerto economy when the outbreak of the Travis virus dramatically increased the uncertainty to firms and businesses. What is the policy option to solve this situation if both government debt and its budget deficit are already at alarming level? (Hints: Gradually explain the effect of uncertainty to Concerto economy and then the effect of the chosen policy to the economy in the next period). b. During pandemic, The Concerto government has spent a tremendous amount of money, mostly from debt, to support the economy. What happen to domestic investment if after pandemic the Concerto government start reducing its budget deficit to avoid the unsustainable debt burden? c. Is there any factor that make your answer in point b will be invalid?…arrow_forward5. The U.S. conducts a great deal of trade with western European countries. Suppose western European countries suffer a severe recession. How would the European recession affect the general price level, real GDP and employment in the U.S. in the short run? In the long run? Explain in words and a graph.arrow_forwardQuestion:- Comment, on the likely outcome with sufficient arguments? a) Impact on aggregate demand of the economy if imports are greater than exports.b) Impact on aggregate demand if the GDP of trading partner is increasing at a faster rate than that of India.c) Inflation rate in the country has reached 6.73%.d) Impact on GDP when, Interest rates have come down in the countrye) Impact on balance of payment, when there is a huge demand of vaccines produced in India in South Africa.f) Inflation rate in India reaches negative 2% (-2%)g) The aggregate demand falls short of aggregate supply in the economyarrow_forward
- Show the impact of the increase in the price level by moving the point along the curve or shifting the curve. (?) PRICE LEVEL 180 150 120 90 60 30 0 0 20 Aggregate Demand 40 60 80 OUTPUT (Billions of dollars) 100 120 The change in the interest rate found in the previous task will lead to a in the quantity of output demanded in the economy. Aggregate Demand -O in residential and business spending, which will causearrow_forwardQUESTION 6 P (products price level) Short-run Aggregate Supply Keynesian range Classical or Modetarist range intermediate range AS Q (real GDP) 06. Which of the following statements are FALSE? O (a) In the horizontal (Keynesian) range of the AS curve Keynesian macroeconomic policy is very effective. (b) In the intermediate range Keynesian macroeconomic policy is less effective because its impact is partially dissipated by inflation. (c) In the vertical (Monetarist or Classical) range Keynesian policy is totally ineffective as an increase in Aggregate Demand produces only inflation. (d) The AS curve can become vertical only when the economy is operating beyond full employment.arrow_forward(a) Suppose the price level in an economy rises while the money wage rate remains constant. What happens to the quantity of real GDP supplied. How will this affect the aggregate supply or aggregate demand curve? What if the potential GDP increases? Which aggregate curve is affected and how? (b) Planned Real GDP Consumption Investment $1,000 $100 1,900 100 2,800 100 3,700 100 $1,000 2,000 3,000 4,000 Government Purchases Net Exports $150 -$50 150 -50 150 -50 150 -50 From the table data provided, answer the following questions. The numbers in the table are in billions of dollars. Show all calculations. a. What is the equilibrium level of real GDP? b. What is the Marginal Propensity to Consume? c. What is the multiplier value in this economy? d. If potential GDP is $4,000 billion, is the economy at full employment? If not, what is the condition of the economy? e. If the economy is not at full employment, by how much should government spending increase so that the economy can move to the…arrow_forward
- Economics 3040 Intermediate Macro HW4: An Adverse Demand Shock For all graphs label: both axis, all lines or curves, and all equilibrium values. Also be sure that the direction of shifts in lines and changes in equilibrium values are clear. Your graphs should be large enough to easily interpret. Turn in your graphs on paper at the beginning of the March 26th class meeting. (1) Sketch a graph of the goods market (AD-SRAS-LRAS) and a graph of the labor market with both markets initially in long run equilibrium. Label the initial values of real GDP, the price level, employment, and the nominal wage. Now show the effect of an adverse demand shock on both graphs and label the new values of all variables. (2) Sketch a graph of the goods market initially in a recession. Label potential real GDP, real GDP in the current recession, and the current price level. Also label the recessionary gap. Now show how an increase in government spending may end the recession. (3) Sketch a graph of the goods…arrow_forward11- In the long run, a decrease in government purchases of military equipment would cause aggregate price level to … and the aggregate output to…. A- fall, stay constant B- fall, fall C- stay constant, fall D- stay constant, risearrow_forward3. Explain how each of the following will affect aggregate demand. In each case, draw a diagram to show the effect on the aggregate demand curve. (a) Negative economic indicators cause firms to become pessimistic about the future of the economy. (b) Banks become complacent and begin taking on riskier business loans at lower interest rates. (c) The government passes legislation that increases the rate of corporate taxes. (d) Inflation leads the central bank to increase the base interest rate.arrow_forward
- 1. Consider labor market in an economy. In a classical model, you can think that each worker comes with one unit of effort. In a Keynesian model effort makes a difference. Suppose that the efficiency wage is above labor market equilibrium. (a) Draw a graph where you can show both employment and unemployment predicted by each model. Discuss unemployment under both models. (b) Now suppose a negative productivity shock hits the economy. How would employment and unemployment change under both Classical and Keynesian model. Show your results on a graph. (c) When the economy is hit by a negative productivity shock, workers are worried about their jobs and they start working harder, that is they increase their effort from two to three. (Note that in the Classical model this is not possible. their effort level is still unity.) How would this affect employment, unemployment and output in the Keynesian model? (d) This time, suppose there is a positive productivity shock. Draw a graph and show…arrow_forward111.) If consumption falls, Keynesians believe unemployment will ________ for everyone, while Austrians believe that unemployment will fall for those employed in ______________. rise, late stages of production rise, early stages of production fall, late stages of production fall, early stages of productionarrow_forwardIf households decide to save a larger portion of their income, what effect would this have on the output, employment, and price level in the short run? What about the long run?arrow_forward
Principles of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStax