Year 2020 2021 Potential GDP $18.0 trillion 18.4 trillion Real GDP $18.0 trillion 18.0 trillion Price Level 120.3 122.7 a. If Congress and the president want to keep real GDP at its potential level in 2021, should they use an expan- sionary policy or a contractionary policy? In your answer, be sure to explain whether Congress and the president should increase or decrease government purchases and taxes. Draw an aggregate demand and aggregate supply graph to illustrate your answer. Be sure that your graph contains LRAS curves for 2020 and 2021; SRAS curves for 2020 and 2021; AD curves for 2020 and 2021, with and without fiscal policy action; and equilibrium real GDP and the price level in 2021, with and without fiscal policy. i. Real GDP ii. Potential GDP iii. The inflation rate iv. The unemployment rate b. If Congress and the president are successful in keeping real GDP at its potential level in 2021, state whether each of the following will be higher, lower, or the same as it would have been if they had taken no action.

Year 2020 2021 Potential GDP $18.0 trillion 18.4 trillion Real GDP $18.0 trillion 18.0 trillion Price Level 120.3 122.7 a. If Congress and the president want to keep real GDP at its potential level in 2021, should they use an expan- sionary policy or a contractionary policy? In your answer, be sure to explain whether Congress and the president should increase or decrease government purchases and taxes. Draw an aggregate demand and aggregate supply graph to illustrate your answer. Be sure that your graph contains LRAS curves for 2020 and 2021; SRAS curves for 2020 and 2021; AD curves for 2020 and 2021, with and without fiscal policy action; and equilibrium real GDP and the price level in 2021, with and without fiscal policy. i. Real GDP ii. Potential GDP iii. The inflation rate iv. The unemployment rate b. If Congress and the president are successful in keeping real GDP at its potential level in 2021, state whether each of the following will be higher, lower, or the same as it would have been if they had taken no action.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 5P

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Similar questions

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