Can you help me with these aplia questions please?
Consider a closed economy with government spending. The following graph shows a 45-degree line and plots expenditures (C + I + G) as a function of real GDP. Assume that potential GDP is $400 billion.
http://courses.aplia.com/problemsetassets/macro/VanGaasbeck_27_business_cycle_II/1_image.gif
1. Where is the economy's current equilibrium? Also, what two points mark the potential GDP at $400 billion?
2. Is this economy is in an inflationary gap??
3. To close the gap, which fiscal policy response is appropriate?
A. An increase in government spending
B. An increase in income taxes
C. An increase in fixed taxes
D. All these choices
E. A decrease in transfer payments
F. An increase in interest rates
4. Find how fiscal policy can close this gap using government spending. At what points are the new expenditures line with the change in government spending. And what is the new equilibrium point?
5. Assume the government uses fiscal policy to close the recessionary/inflationary gap. By how much must government spending change to close the gap? (Express your answer in billions of dollars.)
Thanks so much in advance!!
Consider a closed economy with government spending. The following graph shows a 45-degree line and plots expenditures (C + I + G) as a function of real GDP. Assume that potential GDP is $400 billion.
http://courses.aplia.com/problemsetassets/macro/VanGaasbeck_27_business_cycle_II/1_image.gif
1. Where is the economy's current equilibrium? Also, what two points mark the potential GDP at $400 billion?
2. Is this economy is in an inflationary gap??
3. To close the gap, which fiscal policy response is appropriate?
A. An increase in government spending
B. An increase in income taxes
C. An increase in fixed taxes
D. All these choices
E. A decrease in transfer payments
F. An increase in interest rates
4. Find how fiscal policy can close this gap using government spending. At what points are the new expenditures line with the change in government spending. And what is the new equilibrium point?
5. Assume the government uses fiscal policy to close the recessionary/inflationary gap. By how much must government spending change to close the gap? (Express your answer in billions of dollars.)
Thanks so much in advance!!