Create an Account

Already have account?

Forgot Your Password ?

Home / Questions / The accompanying diagram shows the current macroeconomic situation for the economy of Brit...

The accompanying diagram shows the current macroeconomic situation for the economy of Brittania; real GDP is Y1 and the aggregate price level is P1 You have been hired as an economic consultant

The accompanying diagram shows the current macroeconomic situation for the economy of Brittania; real GDP is Y1, and the aggregate price level is P1. You have been hired as an economic consultant to help the economy move to potential output, YP. a. Is Brittania facing a recessionary or inflationary gap? b. Which type of fiscal policy—expansionary or contractionary— would move the economy of Brittania to potential output, YP? What are some examples of such policies? c. Illustrate the macroeconomic situation in Brittania with a diagram after the successful fiscal policy has been implemented. AD1 SRAS P1 Y Real GDP 1 YP Aggregate price level E1 LRAS Potential output AD1 SRAS P1 Y Real GDP 1 YP Aggregate price level E1 LRAS Potential output 3. An economy is in long -run macroeconomic equilibrium when each of the following aggregate demand shocks occurs. What kind of gap—inflationary or recessionary—will the economy face after the shock, and what type of fiscal policies would help move the economy back to potential output? How would your recommended fiscal policy shift the aggregate demand curve? a. A stock market boom increases the value of stocks held by households. b. Firms come to believe that a recession in the near future is likely. c. Anticipating the possibility of war, the government increases its purchases of military equipment. d. The quantity of mo

Jun 04 2020 View more View Less

Answer (Solved)

question Subscribe To Get Solution

Related Questions