Econ
According to the "Rule of 70", how many years will it take for real GDP per capita to double when the growth rate of real GDP per capita is 5%?
14 years
If the growth rate of real GDP rises from 3% to 4% per year, then the number of years required to double real GDP will decrease from
23.3 years to 17.5 years.
[Related to Solved Problem #4] Suppose that real GDP is currently $13.5 trillion and potential real GDP is $14.0 trillion, or a gap of $500 billion. The government purchases multiplier LOADING... is 10.0, and the tax multiplier is 9.0. Holding other factors constant, by how much will government purchases need to be increased to bring the economy to equilibrium at potential GDP? Government spending will need to be increased by $ 50 billion. (Enter your response rounded to the nearest whole number.) Holding other factors constant, by how much will taxes have to be cut to bring the economy to equilibrium at potential GDP? Taxes will need to be cut by $ 56 billion. (Enter your response rounded to the nearest whole number.)
50,56
Use the graph on the right to answer the following questions. a. Which of points A, B, C, or D can represent a long-run equilibrium?
A and C
The graph to the right illustrates the static AD-AS model. Suppose the economy is initially in long-run equilibrium at point A. The government decides to decrease government spending. In the short-run, this contractionary fiscal policy will cause:
A shift from AD 2 to AD 1 and a movement to point D, with a lower price level and lower output.
Refer to the diagram to the right. "Crowding out" of firm investment as a result of a budget deficit is illustrated by the movement from
A to B
Refer to the diagram to the right. Diminishing marginal returns is illustrated in the perminusworker production function by a movement from
A to C
Suppose that initially, the economy is in long-run macroeconomic equilibrium at point A. If there is increased pessimism about the future of the economy, the AD curve will shift from AD 0 to AD 1 . The new short-run macroeconomic equilibrium occurs at point B . Long-run adjustment will shift the SRAS curve from SRAS 0 to SRAS 1 as workers adjust to lower-than-expected prices. The new long-run macroeconomic equilibrium occurs at point C .
AD0 to AD 1 point B SRAS0 TO 1 POINT C
Increased government debt can lead to higher interest rates and, as a result, crowding out of private investment spending. In terms of borrowing (debt-spending), what will offset the effect of crowding out in the long run so that government debt poses less of a problem to the economy?
All of the above.
Refer to the diagram to the right. Technological change is illustrated in the per minus worker production function by a movement from
B to C
What is a contractionary fiscal policy?
Contractionary fiscal policy includes decreasing government spending and increasing taxes to decrease aggregate demand.Co
b. Suppose that initially the economy is at point A. Then aggregate demand increases from AD1 to AD2. The new short-run equilibrium will be at point D . The long-run equilibrium point will be at point C .
D and C
Which of the following best explains how the economy will adjust from the short-run equilibrium point to the new long-run equilibrium point?
Due to the higher priceDu level, workers will demand higher wages, and firms will raise prices and cause SRAS to shift to the left to point C.
Consider the figures below. Determine which combination of fiscal policies shifted AD 1 to AD 2 in each figure and returned the economy to long-run macroeconomic equilibrium.
ExampleEx (A): Expansionary fiscal policy. Example (B): Contractionary fiscal policy.
What is an expansionary fiscal policy?
Expansionary fiscal policy includes increasing government spending and decreasing taxes to increase aggregate demand.
What is fiscal policy?
Fiscal policy can be described as changes in government spending and taxes to achieve macroeconomic policy objectives.
The term "crowding out" refers to a situation where:
Government spending increases interest rates and decreases private investment
[Related to Solved Problem #4] Suppose that real GDP is currently $13.2 trillion and potential real GDP is $14.0 trillion, or a gap of $800 billion. The government purchases multiplier LOADING... is 5.0, and the tax multiplier is 4.0. Holding other factors constant, by how much will government purchases need to be increased to bring the economy to equilibrium at potential GDP?
Government spending will need to be increased by $ 160 billion. (Enter your response rounded to the nearest whole number.) Holding other factors constant, by how much will taxes have to be cut to bring the economy to equilibrium at potential GDP? Taxes will need to be cut by $ 200 billion. (Enter your response rounded to the nearest whole number.)
According to the multiplier effect LOADING..., an initial increase in government purchases increases real GDP by more than the initial increase in government purchases.
More than
Complete the following table for a static AD-AS model:
Recession Expansionary up arrow Gov't spending or decrease taxes Real GDP and price level rise Rising inflation Contractionary Decrease gov't spending or up arrow Taxes Real GDP and price level fall
Who is responsible for fiscal policy?
The federal government controls fiscal policy.Th
Why might cutting government spending as a fiscal policy be a more difficult policy than the use of monetary policy to slow down an economy experiencing inflation?
The legislative process experiences longer delays than monetary policy.Th
Which of the following are examples of discretionary fiscal policy? (Check all that apply.)
The president and Congress reduce tax rates to increase the amount of investment spending. The government provides stimulus funds to repair roads and bridges to increase spending in the economy. Congress provides a tax rebate to encourage additional spending in order to reduce the unemployment rate.Co
Why does a $1 increase in government purchases lead to more than a $1 increase in income and spending?
Through the government purchases multiplier, the $1 increase in government spending will lead to an increase in aggregate demand and national income, which will lead to an increase in induced spending.
Which of the following would cause a decrease in aggregate demand?
a decrease in government spending
When actual GDP is below potential GDP the budget deficit increases because of:
an increase in transfer payments and a decrease in tax revenues.an
Government spending and taxes that increase or decrease without any actions taken by the government are referred to as
automatic stabilizers.au
The long-run aggregate supply curve is vertical because in the long run,
changes in the price level do not affect potentialch GDP, as potential GDP depends on the size of the labor force, capital stock, and technology.
When additions of input to a fixed quantity of another input lead to progressively smaller increases in output, we say we are facing
diminishing returns
Actual real GDP will be above potential GDP if
firms are producing above capacity.fi
Creative destruction means that
firms develop new products that replace old products in thefi economy, thereby encouraging economic growth.
Aggregate demand (AD) is comprised of expenditure components that include:
governmentgo spending, consumption, investment, and net exports.
Which of the following increases labor productivity?
inventions of new machinery, equipment, or software
In a closed economy, public saving plus private saving is equal to
investment.in
The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as
labor productivity.la
Consider the following data for a closed economy: Y = $12 trillion C = $8 trillion I= $2 trillion G = $2 trillion TR = $2 trillion T = $3 trillion Refer to the scenario above. Based on the information above, what is the level of public saving?
negative $1 trillion (a deficit of $1 trillion)
According to new growth theory,
technological change is influenced by economic incentives.
The position of the long-run aggregate supply (LRAS) curve is determined by
the number ofth workers, the amount of capital, and the available technology.
Because of diminishing returns, an economy can continue to increase real GDP per hour worked only if
there is technological change.th
When the economy is experiencing an expansion automatic stabilizers will cause:
transfer payments to tr decrease and tax revenues to increase.
Consider the following data for a closed economy: Y = $12 trillion C = $8 trillion I= $2 trillion G = $2 trillion TR = $2 trillion T = $3 trillion Refer to the scenario above. Based on the information above, what is the level of private saving in the economy?
$3 trillion
Policy that is specifically designed to affect aggregate supply and increase incentives to work, save, and start a business, by reducing the tax wedge LOADING... is called
supply-side economics.
Refer to the table aboev. Which two countries are consistent with the predictions of the economic growth model?
Botswana and ThailandBo
