Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
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Question
Chapter 26.A, Problem 1SQP
(a)
To determine
Economy in equilibrium with recessionary gap in the short-run classical view.
(b)
To determine
Economy in equilibrium with recessionary gap in the long-run classical view.
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Students have asked these similar questions
the following holds in an economy: YP = $20
Trillion, YActual = $20 Trillion, MPČ = 0.6,
SRAS is perfectly elastic.
a) Use an AD-AS diagram to depict the
economic scenario described.
b) Suppose there is a $0.2 Trillion increase in
autonomous consumption spending. Further
suppose there are no taxes. What would be
the ultimate effect on YActual? Draw a new
diagram to depict this shock and resulting
short-run macroeconomic equilibrium.
c) Again suppose there is a $0.2 Trillion
increase in autonomous consumption
spending (starting from the baseline case you
depicted in part a). Further suppose there are
taxes and the tax rate is 30%. What would be
the ultimate effect on YActual? Draw a new
%3D
diagram to depict this shock and resulting
short-run macroeconomic equilibrium.
d) Use answers to parts b) and c) to comment
on how taxes act as automatic stabilizers in
an economy.
Consider the graph at right showing an economy in recession. Aggregate demand is currently at AD. Equilibrium
currently occurs at Eo. If aggregate demand was ADF, there would be full employment. Suppose the government
engages in fiscal policy that results in full crowding out.
Using the line drawing tool, draw the new demand curve that shows full crowding out.
Carefully follow the instructions above, and only draw the required object.
Price level
Eo
EF
ADO
F
Real GDP per Year ($ trillions)
SRASO
ADF
O
U
Assume the Canadian economy is currently at equilibrium.
a. Using a correctly labeled aggregate demand and supply graph, show
Full employment output (yf)
Current price level (PL1)
b. World War III breaks out and Canada has to get involved. The Prime Minister chooses to increase the military budget by 40%. On your graph from part A, show what will happen in the economy, labeling the new equilibrium as Q2, PL2.
c. Using a correctly labeled graph of the loanable funds market, show how the Prime Minister’s decision will affect the economy.
Chapter 26 Solutions
Economics For Today
Ch. 26.3 - Prob. 1.1YTECh. 26.3 - Prob. 2.1YTECh. 26.3 - Prob. 2.2YTECh. 26.A - Prob. 1SQPCh. 26.A - Prob. 2SQPCh. 26.A - Prob. 3SQPCh. 26.A - Prob. 4SQPCh. 26.A - Prob. 1SQCh. 26.A - Prob. 2SQCh. 26.A - Prob. 3SQ
Ch. 26.A - Prob. 4SQCh. 26.A - Prob. 5SQCh. 26.A - Prob. 6SQCh. 26.A - Prob. 7SQCh. 26.A - Prob. 8SQCh. 26.A - Prob. 9SQCh. 26.A - Prob. 10SQCh. 26.A - Prob. 11SQCh. 26.A - Prob. 12SQCh. 26.A - Prob. 13SQCh. 26.A - Prob. 14SQCh. 26.A - Prob. 15SQCh. 26 - Prob. 1SQPCh. 26 - Prob. 2SQPCh. 26 - Prob. 3SQPCh. 26 - Prob. 4SQPCh. 26 - Prob. 5SQPCh. 26 - Prob. 6SQPCh. 26 - Prob. 7SQPCh. 26 - Prob. 8SQPCh. 26 - Prob. 9SQPCh. 26 - Prob. 10SQPCh. 26 - Prob. 11SQPCh. 26 - Prob. 12SQPCh. 26 - Prob. 1SQCh. 26 - Prob. 2SQCh. 26 - Prob. 3SQCh. 26 - Prob. 4SQCh. 26 - Prob. 5SQCh. 26 - Prob. 6SQCh. 26 - Prob. 7SQCh. 26 - Prob. 8SQCh. 26 - Prob. 9SQCh. 26 - Prob. 10SQCh. 26 - Prob. 11SQCh. 26 - Prob. 12SQCh. 26 - Prob. 13SQCh. 26 - Prob. 14SQCh. 26 - Prob. 15SQCh. 26 - Prob. 16SQCh. 26 - Prob. 17SQCh. 26 - Prob. 18SQCh. 26 - Prob. 19SQCh. 26 - Prob. 20SQ
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- Consider a fictional economy that is operating at its long-run equilibrium. The following graph shows the aggregate demand curve (AD) and short-run aggregate supply curve (SRAS) for the economy. The long-run aggregate supply curve (LRAS) is represented by a vertical line at $6 trillion. The economy is initially producing at potential output. Suppose that fiscal authorities decide to increase marginal tax rates. Assume that this change in marginal tax rates is perceived as a long-term change. Shift the appropriate curves to illustrate the supply-side view of the fiscal policy effect on output and the price level. PRICE LEVEL 120 100 80 40 20 0 0 LRAS SRAS AD 2 4 6 8 10 QUANTITY OF OUTPUT (Trillions of dollars) 12 AD SRAS LRAS ? True or False: Supply-side economics is a long-run, growth-oriented strategy.arrow_forwardThe graph shows an economy's aggregate supply and potential GDP. On the graph, draw an aggregate demand curve when the economy is at an above full-employment equilibrium. Label it AD . Draw a point at the above full-employment equilibrium. Draw a horizontal arrow at the equilibrium price level that shows the gap between actual real GDP and potential GDP. >>> Draw only the objects specified in the question.arrow_forwardConsider an economy described by the following set of equations: c = 120 +0.08Y I = 320 G = 480 X-IM = -80 T = 400 a. Find the actual level of GDP. b. If full employment comes at Y = 1000, would there be a recessionary gap or an inflationary gap? c. What spending changes will be necessary to eliminate this gap? d. What amount of tax changes will be necessary to eliminate this gap? e. What are some policies action that can be taken.arrow_forward
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