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Explain why recessionary gaps occur only in the short run and only when the actual price level is below what was expected.
Discuss some instances in your life when your actual production for short periods exceeded what you considered your potential production.
Potential Output Define the economy's potential output. What factors help determine potential output?
Short-Run Aggregate Supply In the short run, prices may rise faster than costs. How would such adjustments affect the slope of the aggregate supply curve?
What is the simple spending multiplier? What is real GDP demanded? What would happen to real GDP demanded if government purchases increased to $40 billion?
This chapter assumes that investment is autonomous. What would happen to the size of the multiplier if investment increases as real GDP increases? Explain.
What is the sum of saving and net taxes when desired spending equals real GDP? Explain. Why the multiplier is related to the slope of the consumption function.
Simple Spending Multiplier Suppose that the MPC is 0.8 and that $14 trillion. By how much would GDP have to increase government purchases to achieve this goal?
How do events, such as the World Trade Center and Pentagon attacks described in the case study The Ripple Effects of 9/11 affect the aggregate expenditure line?
How does the multiplier interact with the price change to determine the new real GDP demanded?
What are three reasons given for a second round of federal spending to follow the 2009 stimulus plan?
Multipliers Suppose investment, in addition to having an autonomous component. How would GDP affect the size of the government purchase and net tax multipliers?
How could a tax cut achieve the same result? Would the tax cut have to be larger than the increase in government purchases? Why or why not?
Illustrate this on an AD-AS diagram, assuming that the government changes its purchases by exactly the amount necessary to close the gap.
Explain why it has this impact. What is the impact on the level of real GDP demanded, assuming the price level remains unchanged?
Calculate the change in the level of real GDP demanded for each of the following values of the MPC.
Assuming that this is true, what was the spending multiplier for the Cash for Clunkers program?
Provide examples of automatic stabilizers. What is the impact of automatic stabilizers on disposable income as the economy moves through the business cycle?
What did classical economists assume about the flexibility of prices, wages, and interest rates? What disagreements did Keynes have with classical economists?
Explain how the steepness of the short-run aggregate supply curve affects the government's ability to use fiscal policy to change real GDP.
Global Economic Watch Go to the Global Economic Crisis Resource Center. Compare and contrast the economic situations in the countries.
Which of the following will cause total revenue earned by swimsuit producers to rise?
A. The average number of hours worked per employee per day? B. The wage paid per hour to each worker?
Read the article Inflation Should Be Lesser Worry for MPC. At the time of publication, what was the output gap in South Africa?
Question 1: Can you please explain the concepts of total utility, marginal utility, and utility maximization.