Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Question
Chapter 14, Problem 8PA
(a)
To determine
The tax cut and its impact on the natural level of output.
(b)
To determine
The tax cut and its impact on the aggregate demand curve, short-run, and long-run
(c)
To determine
The tax cut and its short run impact on output and price level.
(d)
To determine
The tax cut and its long run impact on output and price level.
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Students have asked these similar questions
Price Level
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 0.6, 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 0.8. 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 Real GDP (billions of dollars)
ig
c
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government
decides to conduct fiscal policy…
Use the following graph to answer the next question.
Price Level
AS
AD3
AD₂
AD₁
ADO
IX
Q₁
Real GDP
In the diagram, Qf is the full-employment output. If the economy's current aggregate
demand curve is AD₁, it would be appropriate for the government to_
reduce government purchases and taxes by equal-size amounts.
reduce government purchases or increase taxes.
increase government purchases or reduce taxes.
reduce unemployment compensation benefits.
The graphs illustrate an initial equilibrium for the economy. Suppose that the government increases taxes.
Use the graphs to show the new positions of aggregate demand (AD), short-run aggregate supply (SRAS), and long-run
aggregate supply (LRAS) in both the short run and the long run, as well as the short-run and long-run equilibriums resulting
from this change. Then, indicate what happens to the price level and GDP in the short run and in the long run.
Aggregate price level
Short-run graph
LRAS
SRAS
Short-run equilibrium
Real GDP
AD
Aggregate price level
Long-run graph
LRAS
Long-run equilibrium
Real GDP
AD
SRAS
gate
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Similar questions
- Check my work mode: This shows what is correct o Ecives to conut ca puncy by changing lants to Fiscal Policy 140 LRAS AS 130 120 110 100 Price Level 90 80 70 60 50 AD, 40 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 unu are < Pri ADarrow_forwardUsing the graph, shift the aggregate demand curve to depict the impact that a tax cut has on the economy. PRICE LEVEL 130 120 110 100 90 80 70 0 10 + 20 + 30 OUTPUT Aggregate Demand 40 50 60 Aggregate Demand ?arrow_forwardExamine the following policies and determine which would decrease the level of aggregate demand. Group of answer choices A. Decreasing in government spending and decreasing taxes B. Increasing investment and increasing government spending C. Decreasing in government spending and increasing in taxes D. Increasing consumption and decreasing taxesarrow_forward
- To support the economy against a recession triggered by the Coronavirus, the government is considering increasing public spending. Suppose the government decides to finance the additional spending with new taxes, and to increase taxes by the same amount as public spending. A critic to the government objects saying that if public spending and taxes increase by the same amount, no increase in GDP should be expected: what the government gives to the economy is taken back via taxes. Use the model of aggregate demand and aggregate supply to study if the proposed economic policy could increase GDP by computing the fiscal multipliers. a) Start from the model C + 1 + G + NX = Y with C the aggregate level of consumption, I the aggregate level of investment, G the level of fiscal spending, NX the net experts and Y the level of GDP. Assume NX = 0 and assume that C = c0 + c1(Y-T), with T the level of taxes. Interpret the economic intuition behind the function for consumption. What is c1? b) Derive…arrow_forwardWhich of the following is not an example of government spending hike that will increase aggregate demand? Answers: A. Unemployment compensation. B. Government purchase of new military jet fighters. C. The construction of a new highway. D. Government purchase of new health care plan for retirees.arrow_forwardUse the model of aggregate demand ang aggregate supply (long run and short run) to explain the impact of the government's decision to increase government spending. Please create a detailed graph.arrow_forward
- The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decides to conduct fiscal policy by changing taxes to bring inflation under control. Price Level Fiscal Policy 160 150 140 130 120 110 100 90 80 70 60 50 40 80 160 240 320 400 480 560 640 720 800 LRAS Real GDP (billions of dollars) AS AD₁ ADarrow_forwardWhich of the following tax policies is most likely to increase investment and long-run aggregate supply? a. a cut in the corporate profit tax b. an increase in the corporate profit tax c. a generous investment tax credit d. a cut in personal income taxesarrow_forwardHow does increased government spending affect the aggregate demand curve?arrow_forward
- Give examples of the factors that shift the Aggregate Demand Curve.arrow_forwardThe graphs illustrate an initial equilibrium for the economy. Suppose that the government increases spending. Use the graphs to show the new positions of aggregate demand (AD), short‑run aggregate supply (SRAS), and long‑run aggregate supply (LRAS) in both the short run and the long run, as well as the short‑run and long‑run equilibriums resulting from this change. Then, indicate what happens to the price level and real GDP (or aggregate output) in the short run and in the long run. Adjust the graph. explain the second image as well and which is right.arrow_forwardGive examples of the factors that shifts the Aggregate Supply Curve.arrow_forward
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