Suppose the US economy is currently in long-run equilibrium at potential output. A tax overhaul lowers...

Suppose the US economy is currently in long-run equilibrium at potential output. A tax overhaul lowers corporate income taxes and adds $1.4 trillion to the national debt. Using economic reasoning and models as evidence, evaluate and discuss how this event will likely impact output, employment, interest rates and the price level in the A) short run and B) long run. Be sure to address any assumptions you make as well as the perspective you take.

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Rahul Sunny answered 2 years ago

Suppose the US economy is currently in long run equilibrium. Predict how each of the following...

Suppose the US economy is currently in long run equilibrium. Predict how each of the following events will likely impact output, employment and the price level in the short run and the long run. Be sure to identify which component of aggregate expenditure will be impacted, and how that will in turn affect either AD or AS (and which direction). A tax overhaul lowers income taxes and adds $1.3 trillion to the national debt. Major economic indicators decrease business optimism...

Suppose the economy is in long-run equilibrium.

Scenario 1 - Pessimism Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. Scenario 1 - Pessimism. Which curve shifts and in which direction? aggregate demand shifts right aggregate demand shifts left aggregate supply shifts right. aggregate supply shifts left.

Suppose the economy is currently in short run macroeconomic equilibrium, with actual GDP smaller than potential...

Suppose the economy is currently in short run macroeconomic equilibrium, with actual GDP smaller than potential GDP. (a) Depict this situation using AD-AS, being sure to label all curves and axes. (b) Give an example of an automatic stabilizer, and explain how it could close the gap this economy has. (c) What open market operation could the Federal Reserve carry out, to close this gap? Show graphically the effect it would have.

Suppose your economy resides at long‐run potential output but concerns arise that the birth rate is...

Suppose your economy resides at long‐run potential output but concerns arise that the birth rate is too low to support retired workers on fixed social security payments. Suppose further that technology growth is insignificant. If population is allowed to rise through immigration, what happens to the long‐run aggregate supply curve, prices and interest rates? What could happen to the LR supply curve, prices and interest rates if immigration remained restricted?

Suppose your economy resides at long‐run potential output but concerns arise that the birth rate is...

Suppose your economy resides at long‐run potential output but concerns arise that the birth rate is too low to support retired workers on fixed social security payments. Suppose further that technology growth is insignificant. If population is allowed to rise through immigration, what happens to the long‐run aggregate supply curve, prices and interest rates? What could happen to the LR supply curve, prices and interest rates if immigration remained restricted?

1)Suppose the Canadian economy is at its long-run equilibrium with national income equal to the potential...

1)Suppose the Canadian economy is at its long-run equilibrium with national income equal to the potential national income. a) Suppose there is an increase in government purchases (G). Use ALL diagrams to show the effect of an increase in government purchases (G) on aggregate demand. Are equilibrium price and national income higher or lower at the new short-run equilibrium? b)Suppose there is a decrease in wealth (W) because of a price change. Use ALL diagrams to show the effect on...

Suppose that the economy is at long-run equilibrium. If there is a sharp decline in the...

Suppose that the economy is at long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, then in the short run a. real GDP will rise and the price level might rise, fall, or stay the same. b. real GDP will fall and the price level might rise, fall, or stay the same. c. the price level will rise, and real GDP might rise, fall, or stay the...

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Suppose the economy is in a long-run equilibrium. Currently because of all oil producer producing high...

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Assume that the economy of Robsville is currently in long-run equilibrium, with a natural rate of...

Assume that the economy of Robsville is currently in long-run equilibrium, with a natural rate of unemployment equal to 6% and an inflation rate of 2%. a) Draw a correctly labeled graph of the short-run Phillips curve, and label the curve as "SRPC". Indicate the point on the SRPC corresponding to the current unemployment and inflation rates labeled as "R". b) On your graph in part (a), draw the long-run Phillips curve, and label it as "LRPC". c) Assume that...

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Suppose the US economy is currently in long-run equilibrium at potential output. A tax overhaul lowers...

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