Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 24, Problem 24.3.9PA
To determine
The reason why forecasting is difficult during a recession.
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The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government
decides to conduct fiscal policy by changing taxes to reduce the burden of this recession.
Fiscal Policy
Price Level
150
LRAS
AS
140
130
120
110
100
90
80
70
60
50
40
30
AD1
AD
0 80 160 240 320 400 480 560 640 720 800
Real GDP (billions of dollars)
Instructions: Enter your answer as a whole number. If you are entering a negative number Include a minus sign.
a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium?
$
billion
b. If the MPC is 0.5, how much do taxes need to change to shift aggregate demand by the amount you found in part a?
billion
Suppose Instead that the MPC is 0.6.
c. How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium?
Aggregate demand needs to change by $[ billion and taxes need to change by $[
billion.
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government
decides to conduct fiscal policy by changing taxes to reduce the burden of this recession.
Fiscal Policy
Price Level
140
130
120
110
100
90
80
70
60
50
LRAS
$
AS
AD₁
40
0 80 160 240 320 400 480 560 640 720 800
Real GDP (billions of dollars)
billion
AD
Instructions: Enter your answer as a whole number. If you are entering a negative number include a minus sign.
a How much does aggregate demand need to change to restore the economy to its long-run equilibrium?
$
b. If the MPC is 0.6, how much do taxes need to change to shift aggregate demand by the amount you found in part a?
billion
Suppose instead that the MPC is 0.92
c How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium?
Aggregate demand needs to change by S
billion and taxes need to change by $[
billion.
Use the table to answer the following questions:
Public Debt over Time
United States
France
Italy
Belgium
Australia
France
Belgium
Australia
the United States
2001
Debt
$3.3 trillion
$0.9 trillion
$1.5 trillion
$0.3 trillion
$0.2 trillion
According to the table, which country appeared to be in the worst fiscal shape in 2012?
Italy
GDP
$10.2 trillion
$1.5 trillion
$1.2 trillion
$0.3 trillion
$0.7 trillion
2011
Debt
$12.2 trillion
$1.8 trillion
$1.7 trillion
$0.3 trillion
$0.4 trillion
GDP
$15.0 trillion
$2.0 trillion
$1.6 trillion
$0.4 trillion
$1.4 trillion
Chapter 24 Solutions
Economics (7th Edition) (What's New in Economics)
Ch. 24 - Prob. 24.1.1RQCh. 24 - Prob. 24.1.2RQCh. 24 - Prob. 24.1.3RQCh. 24 - Prob. 24.1.4PACh. 24 - Prob. 24.1.5PACh. 24 - Prob. 24.1.6PACh. 24 - Prob. 24.1.7PACh. 24 - Prob. 24.1.8PACh. 24 - Prob. 24.1.9PACh. 24 - Prob. 24.1.10PA
Ch. 24 - Prob. 24.2.1RQCh. 24 - Prob. 24.2.2RQCh. 24 - Prob. 24.2.4RQCh. 24 - Prob. 24.2.5RQCh. 24 - Prob. 24.2.6PACh. 24 - Prob. 24.2.7PACh. 24 - Prob. 24.2.8PACh. 24 - Prob. 24.2.9PACh. 24 - Prob. 24.2.10PACh. 24 - Prob. 24.2.11PACh. 24 - Prob. 24.2.12PACh. 24 - Prob. 24.2.13PACh. 24 - Prob. 24.2.14PACh. 24 - Prob. 24.2.15PACh. 24 - Prob. 24.3.1RQCh. 24 - Prob. 24.3.2RQCh. 24 - Prob. 24.3.3RQCh. 24 - Prob. 24.3.4PACh. 24 - Prob. 24.3.5PACh. 24 - Prob. 24.3.6PACh. 24 - Prob. 24.3.7PACh. 24 - Prob. 24.3.8PACh. 24 - Prob. 24.3.9PACh. 24 - Prob. 24.3.10PACh. 24 - Prob. 24.4.1RQCh. 24 - Prob. 24.4.2RQCh. 24 - Prob. 24.4.3RQCh. 24 - Prob. 24.4.4PACh. 24 - Prob. 24.4.5PACh. 24 - Prob. 24.4.6PACh. 24 - Prob. 24.4.7PACh. 24 - Prob. 24.4.8PACh. 24 - Prob. 24.4.9PACh. 24 - Prob. 24.4.10PACh. 24 - Prob. 24.2RDECh. 24 - Prob. 24.1CTECh. 24 - Prob. 24.2CTE
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