Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Chapter 14, Problem 14E
To determine
To explain:
The creation of a political business cycle using the aggregate
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Using the aggregate demand and supply model shows how a government can manage aggregate demand.
Draw a graph, using the Aggregate Demand – Aggregate Supply curves, the result of a tax increase and cuts in federal expenditures during a period of inflation. Label all axes and curves and show which curve shifts and indicate the new equilibrium. As well as explain your graph in words.
Suppose, OPEC decides to cut down oil production, causing oil price to go up.
a. Explain with the help of an aggregate demand and aggregate supply diagram how price level and potential level of output changes if the government does not take any policy initiatives.
b. Now, suppose the government takes policy actions to bring the economy back to its potential level of output. Recommend what possible policies the government can take and explain with the help of a diagram how this will affect your answer in part a.
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- How would an increase in income tax influence the aggregate demand and theaggregate supply in the economy? Use examples to illustrate your answer.arrow_forwardOne supply-side measure introduced by the Reagan administration was a cut in income tax rates. Use an aggregate demand/aggregate supply diagram to show what effect was intended. What might happen if such a tax cut also shifted the aggregate demand curve.arrow_forwardCan governments use expansionary fiscal policy or expansionary monetary to effectively fight recessions? Why or Why Not?arrow_forward
- The establishment of a new government affect the economy in various ways. Explain how the economy gets affected by it.arrow_forwardplease answer the following question: 1. Expansionary policies are government policies that:A) Increase Aggregate Demand B) Decrease Aggregate Demand C) Decrease Aggregate Supplyarrow_forwardWho has a better chance at getting a high paying job as an economic policy advisor in a republican administration?arrow_forward
- Briefly describe Supply-side/Reaganomics economic policy.arrow_forwardUsing an aggregate supply and demand graph, show what happens when expansionary fiscal policies are enacted such as the 2017 Tax Cuts and Jobs Act when the economy is at full employment. Label all of the curves, the vertical and horizontal axis and show the direction and impact on the economy.arrow_forwardEconomists at which of the following government offices help formulate spending plans and regulatory policies? Office of Management and Budget Congressional Budget Office Department of the Treasury The Federal Reservearrow_forward
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