Explain why potential GDP is referred to as the “anchor” for the economy
Potential real GDP is also referred to as realized real GDP. full-employment real GDP. targeted real GDP. balanced-budget real GDP.
Consider an economy that begins with real GDP equal to potential GDP. There is then a sudden increase in the prices of raw materials, which shifts the aggregate supply (AS)curve upward. a. Draw the initial long run equilibrium in an AD/AS diagram. b. Now show the immediate effect of the supply shock in your diagram. c. Suppose wages and prices in this economy adjust instantly to shocks. Explain what happens to unemployment in this economy. d. If wages and prices...
Assume that the economy is in equilibrium at potential GDP and then the demand for housing sharply declines. What actions could the government take to move the economy back to potential GDP? Support your discussion with an appropriate graph
6.7 When the economy is at its potential GDP level, do you think there is a role for fiscal policy? Why or why not?
What are the three approaches to GDP measurement? Explain why, in a simple economy, the three approaches would yield the same figure for the value of total production.
Suppose the economy is at a short-run equilibrium GDP that lies below potential GDP. Which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP? A) Output will decrease. B) Prices will increase. C) Unemployment will rise. D) Short-run aggregate supply will shift to the right.
When an economy experiences a recession, it is producing -potential Real GDP -less than potential Real GDP -less or more than potential REAL GDP. it depends on the cause of the recession.
“Potential GDP refers to the level of production of goods and services in an economy with full employment of its available resources.” Discuss three reasons for change in the level of potential GDP.
Suppose the economy starts out in a long-run equilibrium at potential GDP.. Draw the economy’s short-run and long-run Phillips curves in one graph an AS/AD diagram with potential GDP shown in a second graph. Suppose a wave of business pessimism reduces aggregate demand. Show the effect of this shock on your diagrams from part a). Can the government return the economy to its original inflation rate and original unemployment rate using fiscal policy? Now start over with the economy back...
A)What does the GDP exclude? Answer: B)Explain why when the economy goes into full gear, producing robustly, unemployment falls, but inflation tends to rise: Answer: C)Explain why when the economy falls into a recession, or even slows down, producing less, unemployment tends to rise, and yet inflation eases: Answer: