Presumably you have learned to diagnose the state of an economy and to explain h

Question

Presumably you have learned to diagnose the state of an economy and to explain how/why classical economists and Keynesians would deal with various problems in the For this problem set I want you to go to the primary sources we've used in class and do this for the U.S. economy for the 3rd quarter of 1990. If the source we examined in class presents monthly data then report the average of all three months' data from the 3rd quarter of 1990. 1. Insert a table containing your data here: Clearly circle your answers for these multiple choice questions. 1. During the 3rd quarter of 1990, theaconomy looked most like: During the 3rd quarter of 1990, it appears that the economy was experiencing: a. arecessionary gap an inflationary gap c. full employment 3. During the 3rd quarter of 1990, classical economists would advocate that the government: a^do nothing and wait for wage rates to start falling nothing and wait for wage rates to start rising C. Increase government spending and/or cut taxes d. reduce government spending and/or raise taxes 4. During the 3rd quarter of 1990, Keynesian economists would advocate that the government: a. nothing and wait for wage rates to start falling b. nothing and wait for wage rates to start rising increase government spending and/or cut taxes reduce government spending and/or raise taxes

Explanation / Answer

See, as per the table , the potential GDP (8970) which is depicted by LRAS curve is less than the actual GDP of three quarters which is 8983.70 This means that the economy is in equilibrium above the potential level of GDP in the short run.9 Claeraly as per the information provided in the table)

1. Option C as GDP is more than the potential GDP.

2. Inflationary Gap as Actual Real GDP is more than potential GDP.

3. Option a as fall in wage rate would shift the SRAS curve to left.

4. Option D. To reduce the inflationary gap. The policy would shift AD to left,

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