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In: Economics

Suppose that the United States economy is in deep recession. (a)    Imagine an aggregate demand and aggregate...

Suppose that the United States economy is in deep recession.

(a)    Imagine an aggregate demand and aggregate supply graph, would the equilibrium price level and real gross domestic product be below, above, or at full employment?

(b)   There is a debate in Congress as to whether to decrease personal income taxes by a given amount or to increase government purchases by this amount. Which of these two fiscal policies will have a larger impact on real gross domestic product? Explain

(c)    Explain how a decrease in personal income taxes will affect each of the following in the short run.

(i)             Consumption

(ii)            Real GDP and Price Level

(iii)           Imports

(iv)           Exports

(d)   Explain the mechanism by which an increase in net investment will cause each of the following to change.

(i)             Aggregate demand

(ii)            Long-run aggregate supply

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Expert Solution

Rahul Sunny answered 2 years ago
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