Indicate whether each of the following statements is true, false, or uncertain, and explain your answer...

Indicate whether each of the following statements is true, false, or uncertain, and explain your answer in great detail. If a word or phrase is italicized and bolded your answer must include a concise definition of the word or phrase. You must include graphs when necessary.

How does an economy get out of a recessionary gap? (use a graph.)

Solutions

Expert Solution

A recession occurs when the real GDP falls below the full employment level of the output.To get out of the recession a expansionary fiscal or the monetary policy is used. The expansionary fiscal policy is the use of increase in the government spending or the cut in the taxes. The expansionary monetary policy is increasing the money supply in the economy by using the various monetary policy tools. When an expansionary fiscal or the monetary policy is used the aggregate demand in the economy increases and this pulls the economy towards the full employment level of output and the recessionary gap is closed. When the expansionary policy is used it adds more money in the hands of people and they consume and invest more, since the consumption and the investment is the components of the aggregate demand the aggregate demand increases. This is shown by the below graph.

Initially the economy was the point E where there was a recessionary gap, to close that gap the government may introduce the expansionary fiscal or monetary policy. When there is a expansionary policy the AD curve shifts to the right. And this will close the recessionary gap and will be out of the recession.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Indicate whether each of the following statements are true, false, or uncertain and explain your answer....

Indicate whether each of the following statements are true, false, or uncertain and explain your answer. a. Consider two zero-coupon bonds, one with a short maturity, and one with a longer maturity. The value of the long-maturity bond is more sensitive (in % terms) to changes in interest rates than the short-maturity bond' s value. b. If the Internal Rate of Return (IRR) of an investment project is above its cost of capital, then the NPV of the project (calculated...

Indicate whether each of the following statement is true, false, or uncertain, and justify your answer....

Indicate whether each of the following statement is true, false, or uncertain, and justify your answer. (a) If a company can choose to treat the cost of developing new software as capital expense or current expense for tax purpose, the company would treat it as capital expenses so that it is counted as investment. (b) Capital goods purchases are deducted both in the current VAT scheme in Korea and in the corporation income tax. (c) Theoretically, conditional grant and unconditional...

Indicate whether each of the following statement is true, false, or uncertain, and justify your answer....

Indicate whether each of the following statement is true, false, or uncertain, and justify your answer. (a) Tax is just the transfer of welfare as the sum people pays is the revenue of the government. (b) If the elasticity of demand is 0, or there is no change in quantity traded due to taxation, there is no excess burden of the tax. (c) Marginal excess burden is greater than average excess burden. (d) Imposition of Pigouvian tax to correct externality...

Indicate whether the following statements are true, false, or uncertain. Explain why. (a) As income is...

Indicate whether the following statements are true, false, or uncertain. Explain why. (a) As income is eventually spent on consumption, income and consumption taxes are equiv- alent. (b) If we use wage rate as basis of taxation, it satisÖes horizontal equity. (c) By increasing corporation income tax rate, we can reduce income inequality. (d) We can eradicate the underground economy by imposing heavy tax. (e) Progressive income tax scheme is necessarily involved with increasing marginal tax rate. (f) If we...

Indicate whether the following statements are TRUE or FALSE and explain your answer fully with an...

Indicate whether the following statements are TRUE or FALSE and explain your answer fully with an adequate explanation a)An efficient outcome is desirable because it allows us to make Pareto improvements. b)Unlike a consumer, a firm does not face a budget constraint. c)If the wage rate increases, then those who work have a stronger incentive to supply labor.

True, False, or Uncertain Explain why each of the following statements is True, False, or Uncertain...

True, False, or Uncertain Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important. A6-5. Suppose a $1000 bond pays annual “coupon interest” equal to 10% and matures in two years. If the yield on bonds with similar risk characteristics is 3%, the price of this bond today is greater than $1000. A6-6. Suppose the Bank of...

True, False, or Uncertain Explain why each of the following statements is True, False, or Uncertain...

True, False, or Uncertain Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important. A6-1. An economy with a recessionary gap will never return to long run equilibrium without policy intervention. A6-2. In a closed economy, investment will equal the sum of private saving and government saving. A6-3. An increase in private saving for a closed economy...

Indicate whether each of the following statements is True or False, and Briefly Justify your answer....

Indicate whether each of the following statements is True or False, and Briefly Justify your answer. The Coefficient of Determination in a multiple linear regression model, R2, is the ratio of residual sum of squares (RSS) to total sum of squares (TSS). It tells us the percentage of unexplained variation in the dependent variable.

Indicate whether each of the following statements is True or False, and Briefly Justify your answer....

Indicate whether each of the following statements is True or False, and Briefly Justify your answer. The Gauss-Markov Theorem says that within the class of linear, unbiased estimators, OLS estimators have zero variance.

Indicate whether the following statements are true or false. Why or why not? Explain your answer...

Indicate whether the following statements are true or false. Why or why not? Explain your answer clearly and concisely. a. [5 points] The fact that health and income are positively correlated suggests that a policy of transferring income from the wealthy to the poor will increase overall health in society. b. [5 points] The concept of need in health care derives from the presence of externalities in healthcare markets.

Subjects