1. Explain the impact of the weak consumer spending on output and inflation in the short-run,...

1. Explain the impact of the weak consumer spending on output and inflation in the short-run, including showing this on your AS-AD diagram.

2. Use a new diagram to help explain what happens to output and inflation in Australia in the short run when federal government introduces a fiscal stimulus package.

Solutions

Expert Solution

Hi,

Hope you are doing well!

Question:

1). Answer:

Explain the impact of the weak consumer spending on output and inflation in the short-run, including showing this on your AS-AD diagram.

When consumer spending decrease its decrease AD when AD decrease its decrease output and price level (inflation). You can see in the the economy is equilibrium at point "E" and when consumer spending decrease its decrease AD and AD curve shift left from AD to AD1. The new equilibrium price is "E1" at the point the price level and output decrease. Price and output decrease from P to P1 and Q to Q1 respectively.

Graph:

2). Answer:

Use a new diagram to help explain what happens to output and inflation in Australia in the short run when federal government introduces a fiscal stimulus package.

When the federal government introduces a fiscal stimulus package then it will increase income level that will increase AD. Increasing AD will increase output and price level (inflation). You can see in the the economy is equilibrium at point "E" and when the federal government introduces a fiscal stimulus package its increase AD and AD curve shift right from AD to AD1. The new equilibrium price is "E1" at the point the price level and output increase. Price and output increase from P to P1 and Q to Q1 respectively.

Thank You

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Explain what happens to the output gap, unemployment, and inflation in the short run if there...

Explain what happens to the output gap, unemployment, and inflation in the short run if there is a permanent income tax cut implemented by the federal government. You do not need to draw any graphs, but thinking about the short run model will help. Be sure to explain which part of IS/MP/PC is affected and why. You may start with an economy at full employment and inflation at the central bank target. Also, discuss what the central bank is likely...

Explain what happens to the output gap, unemployment, and inflation in the short run if there...

Consumer spending (C) is often a leading indicator of future short-run output (Y): It’s a “forward...

Consumer spending (C) is often a leading indicator of future short-run output (Y): It’s a “forward looking” variable. a. How does Real Business Cycle Theory explain this fact? b. In this theory, does current C cause Y? If so, how? If not, why not? c. How does Keynesian Business Cycle Theory explain this fact? d. In this theory, does current C cause Y? If so, how? If not, why not?

Question 1 In the short run, a decrease in consumption spending causes output to _______________and the...

Question 1 In the short run, a decrease in consumption spending causes output to _______________and the unemployment rate to ______________. a. increase; decrease b. decrease; increase c. increase; increase d. decrease; decrease 1 points Question 2 In the short run, an increase in investment spending causes output to ___________ and the unemployment rate to ____________. a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decrease 1 points Question 3 In the short run, an expansion in...

1. For each of the following events, explain the short-run and long-run effects on output and...

1. For each of the following events, explain the short-run and long-run effects on output and the price level, assuming policymakers take no action using a AS-AS-LRAS graph. (8 points) a. The stock market declines sharply, reducing consumers’ wealth. b. The federal government increases spending on national defense. c. A technological improvement raises productivity. d. A recession overseas causes foreigners to buy fewer U.S. goods and services. e. Using AS-AD-LRAS graph, explain the consequences of the budget deficit on output...

Use an income/spending graph and IS curve graph to show the short- run impact of an...

Use an income/spending graph and IS curve graph to show the short- run impact of an increase in autonomous investment on output in the goods market. Include a brief explanation in your answer and be sure to properly label your graphs.

) For each of the following events, explain the short-run and long-run effects on output and...

) For each of the following events, explain the short-run and long-run effects on output and the price level, assuming policymakers take no action. The stock market declines sharply, reducing consumers’ wealth. The federal government increases spending on national defense. A technological improvement raises productivity. A recession overseas causes foreigners to buy fewer U.S. goods.

For each of the following events, explain the short-run and long-run effects on output and the...

For each of the following events, explain the short-run and long-run effects on output and the price level of the Egyptian economy, assuming policymakers take no action. a. The stock market declines sharply, reducing consumers' wealth. b. The government increases spending on national defense. c. A technological improvement raises productivity. d. A recession overseas causes foreigners to buy fewer Egyptian goods and services.

How is COVID-19 is expected to impact the short-run and long-run behavior of output/income, the price...

How is COVID-19 is expected to impact the short-run and long-run behavior of output/income, the price level and interest rates Some pundits argued at the start of the crisis that COVID-19 was a exogeneous negative supply shock with stagflationary consequences (a rise in both unemployment and inflation) to follow, and other economists argue that COVID-19 was an exogenous negative demand shock with recessionary consequences to follow soon.

Explain the concept of short run and give examples. Compare output and prices in the short...

Explain the concept of short run and give examples. Compare output and prices in the short run and in the long run.

Subjects