Figure 11.1 shows the relationship between the price level and the real GDP Whic

Question

Figure 11.1 shows the relationship between the price level and the real GDP Which of the following sets of policies would unambiguously move th economy to full employment? Figure 11.2 shows the relationship between the price level and real GDP. Suppose the econony is currend at e. A letward shift of the shorn-run aggregate supply eueve would renurn the econoeny to potential oupu figure 11.1 Figure 11.2 Potential outpu AD Increase in government purchases, increase in taxes, and decrease in transfer payments Decrease in government purchases, increase in taxes, aed decrease in transfer payments dollars) O Increase in govemment purchases, decrease in taxes, and increase in transfer payments Increase in govemment purchases, increase in taxes, and increase in transfer payments Deaease in government purchases, decrease·n taxes, and decrease in transfer payments The exact change equilibeium output due to a shitt in sho-unaggregane demand depends on poit e pointe. point e* poirs higher thane Oa poirt between e" and e* the amount oftax imposed the steepness ofthr aggregate supply curve. the steepness of the aggregate demand curve the gap between the supply curve and the demand curve. the consumption pattern in the economy. Figure 11.2 shows the relationship between the price level and real GDP. Suppose the economy is currently at e. If the govemment implements a contractionary fiscal policy, the economy would land up at Fiore 112 T Potential output Which of dhe following is an appropriate fiscal policy preseription that addresses the iafiation that occursT when the economy is above potential GD Decreasing tases to peotect consumers from the effects of inflation Increasing taxes to reduce aggregate demand Increasing goversment spending to provide some of the goods that consumers can to lorger affoed at O point e the higher prices O point e Decreasing govemment spending to cause a decrease in the demand for money dollars) point e O a point between e and c" on the potential output line. O a point between e* and e on tbe shoet-run aggregate supply line. Figare 11.2 shows the relationship between the price level and real GDP. Suppose the economy is initially Inceeasing transfer payments to poor people, who we hurt the most by the inflation If fiscal policy is used to close an expansionary gap, the short-run aggregate supply curve shifts leftward and the price level falls short-run aggregate supply curve shifts rightward and the price level increases short-run aggregate supply curve shifts rightward and the price level falls aggregate demand curve shifts leftward and the price level falls aggregate demand curve shifts rightward and the price level falls at point e. A recessionary gp would be creased between Ql and Q2. Q2 and Q3 Q1 and Q3 AD and AD T Suppose an initial increase in government expenditure increases output by $50,000. If the size of the multiptier is 2.5, the size of the initial increase in government expenditure was: AD O $25,000. coliunsAD and AD S20,000. 12,5000. S1250.

Explanation / Answer

11.1 The correct answer is: c)

Reason: We know, AD = C(Y-T + TR) + I + G + NX

Thus, as G increases, AD increases and GDP increases

as Taxes, T decreases, AD increases and GDP increases

as Transfers TR increases, AD increases and GDP increases.

Thus, C is the correct option.

P.S. As per Chegg's policy, if nothing is mentioned, then only the first question is to be answered. So if other answers are required, then repost them mentioning the number of questions to be answered.

Thanks!

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