1. Explain why the equilibrium level of national income is at the point where th
ID: 1234068 • Letter: 1
Question
1. Explain why the equilibrium level of national income is at the point where thereal expenditures curve crosses the 45-degree line.
2. Draw a real expenditures curve on a graph showing a recessionary gap. Explain
what happens to real GDP when it is initially to the right of the equilibrium point
and why. Indicate two public policies that would be appropriate for addressing
this situation. Explain their impact on your graph.
3. Draw a real expenditures curve on a graph showing an inflationary gap. Explain
what happens to real GDP when it is initially to the left of the equilibrium point
and why. Indicate two public policies that would be appropriate for addressing
this situation. Explain their impact on your graph.
4. Using a simplified circular flow diagram (excluding government and net exports),
explain why total expenditures can be greater or less than the value of
production. How will producers respond to each of these situations and how will
their responses affect real GDP? How can intended savings and intended
investment differ, while actual saving and actual investment are always the
same?
5. Explain the different conditions that can make the aggregate supply curve shift
to the right. Show this shift on a graph. What impact will the shift have on
equilibrium GDP?
6. Explain with the aid of a graph why a "self-correcting" recessionary gap cannot
be relied upon to bring an economy out of recession.
7. What are the problems that make fiscal policy difficult to use for stabilization
purposes?
8. Giving examples of "supply-side" tax cuts, explain how they are supposed to
work and the reasons for being skeptical about their usefulness. Draw a graph
or graphs as part of your answer.
9. Explain why any autonomous increase in spending will be magnified by the
multiplier. Draw a graph showing such an increase and the resulting increase in
real GDP.
Explanation / Answer
he only ones i can answer are 1,7, and 8 without a graph. 1. Real expenditures curve in equilibrium is 45 degrees because aggregate expenditures equals GDP along a 45 degree curve. If I had a graph I would show it better but basically when spending=production you are in equilibrium. 7. Fiscal policy is rarely able to deliver on its promise. Fiscal policy is especially difficult to use for stabilization because of the “inside lag”—the gap between the time when the need for fiscal policy arises and when the president and Congress implement it. If economists forecast well, then the lag would not matter because they could tell Congress the appropriate fiscal policy in advance. But economists do not forecast well. Absent accurate forecasts, attempts to use discretionary fiscal policy to counteract business cycle fluctuations are as likely to do harm as good. The case for using discretionary fiscal policy to stabilize business cycles is further weakened by the fact that another tool, monetary policy, is far more agile than fiscal policy. 8. Supply side tax cuts mean that business's pay less taxes. In turn they can produce more products at lower prices so more people buy them. This is supposed to jump start the economy.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.