Refer to the table given below. Suppose that aggregate demand increases such tha
ID: 1180909 • Letter: R
Question
Refer to the table given below. Suppose that aggregate demand increases such that the amount of real output demanded rises by $7 billion at each price level.
Real Output Demanded (Original)
Price
Level
Real Output
Supplied
$506
108
$513
508
104
512
510
100
510
512
96
507
514
92
502
By what percentage will the price level increase? percent
Will this inflation be demand-pull inflation or will it be cost-push inflation? (Click to select)Cost-push inflationDemand-pull inflation
If potential real GDP (that is, full-employment GDP) is $510 billion, what will be the size of the positive GDP gap after the change in aggregate demand? $ billion
If the government wants to use fiscal policy to counter the resulting inflation without changing tax rates, would it increase government spending or decrease it? (Click to select)IncreaseDecrease
Real Output Demanded (Original)
Price
Level
Real Output
Supplied
$506
108
$513
508
104
512
510
100
510
512
96
507
514
92
502
Explanation / Answer
a) changes by 4%
b) cost-push inflation
c)no change,because the price index=100 or 1.
d) to counter inflation , government has to decrease its spending
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