discuss and define potential GDP in our economy and conditions relating to it utilization of resouces,...

discuss and define potential GDP in our economy and conditions relating to it utilization of resouces, inflationary and recessionary gaps in implications for monetary and fiscal policy actions, how does it relate to taylor rule, and where do you feel the economy is at presently? how do we grow potential GDP in the future?

Expert Solution

Rahul Sunny answered 1 year ago

Consider an economy that is operating at its potential GDP (that is, GDP is on trend)...

Consider an economy that is operating at its potential GDP (that is, GDP is on trend) and the inflation rate is equal to the target rate. Suppose there is a shock to Australian imports; specifically, Australian consumers increase their imports of Chinese manufactured goods as they are perceived to have even greater value than before while at the same time maintaining their imports from other countries. (a) Describe what happens in the economy in the current period using the standard...

Consider an economy that is currently at full employment (at potential GDP). illustrate this economy in...

Consider an economy that is currently at full employment (at potential GDP). illustrate this economy in an AD-AS model. suppose that there is increased security about jobs and future income. a. use your graph to show and explain what will happen to the price level GDP and unemployment according to the keynesian model. b. use your graph to show and explain what will happen to the price level GDP and unemployment according to the neo classical model.

Suppose the economy is in a recession (and actual GDP is less than potential GDP). What...

Suppose the economy is in a recession (and actual GDP is less than potential GDP). What fiscal policy actions that could be taken? On the other hand, suppose the economy is experiencing high levels of inflation (and actual GDP is higher than potential GDP)… what fiscal policy actions could be taken? Is it optimal for both the Federal Reserve and the Government to take actions at the same time to “influence” and improve economic conditions? Why or why not?

Define potential output (or potential GDP). How this concept is used by economists to meet the...

Define potential output (or potential GDP). How this concept is used by economists to meet the goals of macroeconomics?

How does our current Real GDP reflect the current state of the economy? (the latest GDP...

How does our current Real GDP reflect the current state of the economy? (the latest GDP report) What is happening to consumption, investment, government spending, and net exports according to the report? According to the latest data and your own evaluation of the economy, where would you say we are in the business cycle and why? Also, choose one of the other reports in U.S. Economy at a Glance (Links to an external site.) and briefly summarize the data from...

What is difference between actual GDP & potential GDP? If actual GDP > Potential GDP are...

What is difference between actual GDP & potential GDP? If actual GDP > Potential GDP are we in boom (expansion) or bust (recession)? If actual GDP > potential GDP is unemployment higher than NAROU or lower? What is the danger of actual GDP > potential GDP? The economy can avoid this danger if what happens?

Assume the economy is operating at potential GDP. In writing and in a graph, explain how...

Assume the economy is operating at potential GDP. In writing and in a graph, explain how each of the events below will affect the equilibrium price level, aggregate output, and the unemployment rate in the United States in the short-run. Be sure to analyze each event independently. Congress passes a new budget that decreases taxes and increases government spending on infrastructure. Due to higher interest rates, business firms decrease investment spending. U.S. productivity declined for the third month in a...

Assume the economy is operating in short-run equilibrium at potential GDP. In writing and in a...

Assume the economy is operating in short-run equilibrium at potential GDP. In writing and in a graph, explain the short-run and long-run effects of each of the events below on the equilibrium price level and RGDP. Assume the economy self-corrects. The Federal Reserve, the central bank of the United States, increases the money supply, lowering interest rates. Due to better than expected weather, crop yields in the United States increase.

45. If the economy is operating well below potential GDP, what will be the effect of...

45. If the economy is operating well below potential GDP, what will be the effect of an increase in aggregate demand? Real GDP will fall, and the price level will fall Real GDP will rise, and the price level will change very little Real GDP will rise, and the price level will rise significantly It is impossible to predict what will happen to real GDP, but the price level will fall It is impossible to predict what will...

Suppose an economy is Initially in equilibrium at potential GDP, Y*. Then the government decreases the...

Suppose an economy is Initially in equilibrium at potential GDP, Y*. Then the government decreases the net tax rate (t). Briefly explain in words (1-2 sentences without a diagram) What type of gap would be caused by this policy AND the impact on real GDP and the price level in the short-run. Decreased net tax rate cause an overall decrease in real GDP, Briefly explain in words (1-2 sentences with no diagram) how the economy adjusts back to the long...

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