Question 1. For each of the following economic condi

08 Jun Question 1. For each of the following economic condi

Question
1. For each of the following economic conditions, place an X in the table to indicate the appropriate range in the Aggregate Supply Curve

Condition

Keynesian

Intermediate

Classical

Unemployment is above the historical average

The nation’s factories are running at capacity

Any increase in GDP will be accompanied by high inflation

The nation is suffering through a severe recession

A mid-point in the business cycle expansion phase

GDP can increase without an increase in the Price Index

2. Many exogenous factors can cause a shift in the Aggregate Supply Curve. For each of the following factors, place an X in the table to indicate how the AS curve would shift.

Factor

AS shift right

(increase in AS)

AS shift left

(decrease in AS)

World oil prices increase substantially

Environmental Protection Agency enacts broad pollution restrictions

Business taxes are reduced

Internal combustion engine fuel efficiencies are greatly increased

Adverse winter weather persists for months more the normal

New restrictions slow immigration

Federal minimum wage is increased by 30%

3. Earlier we learned that Demand, which we now call Aggregate Demand, is comprised of 4 components: Consumption (C), Investment (I), Government spending (G), and Net Exports (NE). Any exogenous factor that increases any of the components will also increase Aggregate Demand. For each of the following, place an X to indicate the component affected and an R or and L to show whether the AD curve shifts Right or Left.

Factor

C

I

G

NE

R or L

Real interest rate decreases

Consumers and executives become more confident in the economic future

The stock market rises

China’s economic growth slows

Congress increases spending for in the current fiscal year

Tariffs are imposed by many countries to protect domestic employment

The US Import/Export bank eliminates guarantees for loans to foreign airlines to purchase Boeing aircraft

Congress tax incentives for firms purchasing new equipment and facilities

4. For each of the following government economic actions, place an X in the table to indicate whether the action is fiscal or monetary policy.

Action

Monetary

Fiscal

Taxes are increased on the wealthiest 1% of households

The Fed purchases Mortgage-backed securities (MBS)

The US Treasury borrows money to finance increased government spending

The federal government provides a rebate to first time home buyers

The President signs and enacts the Affordable Care Act

The Fed promises to keep interest rates near zero for an extended time