Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in a long-run macroeconomic equilibrium. For Year 2, graph aggregate demand, long-run aggregate supply, and short-run aggregate supply such that the condition of the
economy will induce the president and Congress to conduct expansionary fiscal policy. Briefly explain the condition of the economy and what the president and Congress are attempting to do.
What will be an ideal response?
The president and Congress conduct expansionary fiscal policy to increase real GDP to potential real GDP. In the graph below, the economy would move from point A in Year 1 to point B in Year 2 without any expansionary fiscal policy. At point B, real GDP is below potential real GDP. The president and Congress would increase government purchases or decrease taxes to stimulate aggregate demand, trying to push the economy to potential.
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Given a national income of $900 billion, an MPC of 0.8, and autonomous consumption of $60 billion, what is the level of consumption spending?
a. $700 billion b. $760 billion c. $780 billion d. $840 billion e. $900 billion
When economies of scale exist,
a. production costs per unit increase as output expands. b. production costs per unit decline as output expands. c. total production costs decrease. d. total production costs increase.