EBK MACROECONOMICS
21st Edition
ISBN: 8220103959902
Author: McConnell
Publisher: YUZU
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Chapter 12, Problem 9DQ
To determine
Stimulus and the Great Recession.
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1. Aggregate expenditures and income
The following table shows consumption (C), investment (1), government spending (G), and net exports (X-M) in a hypothetical economy for various
levels of real GDP (Y). Assume that the price level remains unchanged at all levels of income. All figures are in billions of dollars.
Compute aggregate expenditures for each income level and fill in the last column In the following table.
Y
с
G
500
525
250 150
600 550 250 150
575
250 150
600 250 150 -200
900 625 250 150 -200
700
800
AL AGGREGATE EXPENDITURES (Billions of dollars)
The following graph shows real GDP on the horizontal axis and aggregate expenditures (AE) on the vertical axis. The orange line (square symbols)
represents a 45-degree (Y-AE) line.
1000
Use the blue points (circle symbol) to plot the aggregate expenditures line for this economy. Line segments will automatically connect the points.
900
300
I
700
X-M Aggregate Expenditures
-200
725
-200
750
775
800
825
600
500 +
-200
AE line
*+…
Economic growth can be represented on graphically by
Shifting the short-run aggregate supply curve to the right
Shifting the aggregate demand curve to the right
Shifting the long-run aggregate supply curve to the left
Shifting the short-run Phillips curve to the right
Shifting the production possibilities curve outward
Which fiscal policy would be the most contractionary?
a $100 billion decrease in government spending
a $100 billion increase in government spending
a $100 billion decrease in taxes
O a $100 billion increase in taxes
O a $50 billion decrease in government spending and a $50 billion decrease in
taxes
You are hired by the Council of Economic Advisors (CEA) as an economic consultant.The chairperson of the CEA tells you that she believes the current unemployment rate istoo high. The unemployment rate can be reduced if aggregate output increases. She wantsto know what policy to pursue to increase aggregate output by 300 billion TL. The bestestimate she has for the MPC is 0.8. Which of the following policies should yourecommend?a) Increase government purchases by 75 billion TL.b) Reduce taxes by 75 billion TL.c) Reduce taxes by 75 billion TL and to increase government purchases by 75 billion TL.d) Reduce the budget deficit by 300 billion TL
Chapter 12 Solutions
EBK MACROECONOMICS
Ch. 12.7 - Prob. 1QQCh. 12.7 - Prob. 2QQCh. 12.7 - Prob. 3QQCh. 12.7 - Prob. 4QQCh. 12.A - Prob. 1ADQCh. 12.A - Prob. 2ADQCh. 12.A - Prob. 1ARQCh. 12.A - Prob. 2ARQCh. 12.A - Prob. 1APCh. 12.A - Prob. 2AP
Ch. 12 - Prob. 1DQCh. 12 - Prob. 2DQCh. 12 - Prob. 3DQCh. 12 - Prob. 4DQCh. 12 - Prob. 5DQCh. 12 - Prob. 6DQCh. 12 - Prob. 7DQCh. 12 - Prob. 8DQCh. 12 - Prob. 9DQCh. 12 - Prob. 1RQCh. 12 - Prob. 2RQCh. 12 - Prob. 3RQCh. 12 - Prob. 4RQCh. 12 - Prob. 5RQCh. 12 - Prob. 6RQCh. 12 - Prob. 7RQCh. 12 - Prob. 8RQCh. 12 - Prob. 9RQCh. 12 - Prob. 1PCh. 12 - Prob. 2PCh. 12 - Prob. 3PCh. 12 - Prob. 4PCh. 12 - Prob. 5P
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- QUESTION 40 B LRAS XXI AD 10 20 30 40 50 real GDP = Q 60 50 40 30 20 10 P level A LRAS -AS- real GDP = Q AD 10 20 30 40 50 40. Which of the figures above illustrates the problem of recessionary gap? O a) Figure A b) Figure B c) Figure C 60 50 40 30 20 10 P level AS 60 50 40 30 20 10 P level C LRAS -AS real GDP = Q AD 10 20 30 40 50arrow_forwardSuppose aggregate demand in the economy sharply decines. Keynesian economists say that the price level (at least for a time) will and real output wil O remain constant; decrease Increase; remain constant remain constant; increase decrease; remain constant lo000arrow_forwardConsider the data shown in the table. Assume that the economy produces only textbooks. What is the growth rate of real GDP between the two years using last year as the base year? |Textbooks Actual Price Sold Last year This year 5,000 $50 5,250 $55 10% 5% O 2.5% 15%arrow_forward
- 2. L Give Up! Suppose the Japanese economy has been experiencing slow growth. As a result, the Prime Minister, who thinks John Maynard Keynes was the greatest economist ever, has decided to increase government spending. The Prime Minister asks the head of the economic council to determine the increase in government spending necessary to bring the economy to full employment. Assume there is a GDP gap of 1 trillion yen and the marginal propensity to consume (MPC) is 0.60. What advice should the head of the economic council give the Prime Minister? O The recessionary gap is equal to 400 billion yen. O The inflationary gap is equal to 400 billion yen. O The recessionary gap is equal to 625 billion yen. O The inflationary gap is equal to 625 billion yen.arrow_forwardWhich one of the following economic policies would not be effective in combating a recession? O a. Increase wages to stimulate aggregate demand and depress the rate of unemployment. O b. Expand the money supply and increase fiscal spending to stimulate aggregate demand. O c. Expand the money supply to stimulate aggregate demand and reduce the rate of unemployment. O d. Decrease wages to increase the quantity of labor demanded and to reduce unemployment.arrow_forwardPrice level 170 140 F 120 100 0 L AS AD3 AD, AD₂ 3.0 4.0 5.0 6.0 7.0 8.0 Real GDP In Exhibit 10-8, if aggregate demand shifts from AD₁ to AD2. a. real GDP will increase from $3.0 to $7.0, and the price level will remain the same. AD5 ADA Ob. real GDP and the price level will both remain the same. Oc. real GDP will increase from $3.0 to $4.0, and the price level will increase from 100 to 140. O d. real GDP will increase from $3.0 to $4.0, and the price level will remain the same.arrow_forward
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