9. Suppose the economy had been operating at its potential level of real GDP in the...

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9. Suppose the economy had been operating at its potential level of real GDP in the past, but consumer and investment spending have suddenly and substantially increased causing inflation. The increase is expected to last for a significant period of time. (a) Use an appropriate diagram to illustrate the initial impact of stated event on the economy. (b) What impact would the event have on the economy's [i] price level, [ii] level of real GDP, [iii] unemployment rate, and [iv] government budget deficit [i.e. increase, decrease, no effect, indeterminate]? [i] Price: [ii] Real GDP: [iii] Unemployment: [iv] Budget Deficit: (c) Describe two different examples of government fiscal policy that could be used to correct the situation outlined at the start of the question. (2 marks) [ii 7 Use an appropriate diagram to illustrate the impact of stated event on the economy of the fiscal policies you have described. (d) When compared to the economy's position prior to the use of such policies, what specific impact would the fiscal policies have on the economy's [i] price level, [ii] level of real GDP, [iii] unemployment rate, and [iv] government budget deficit [i.e. increase, decrease, no effect, or is the outcome indeterminate]? [i] Price: [ii] Real GDP: [iii] Unemployment: [iv] Budget Deficit:_ 12 9. Suppose the economy had been operating at its potential level of real GDP in the past, but consumer and investment spending have suddenly and substantially increased causing inflation. The increase is expected to last for a significant period of time. (a) Use an appropriate diagram to illustrate the initial impact of stated event on the economy. (b) What impact would the event have on the economy's [i] price level, [ii] level of real GDP, [iii] unemployment rate, and [iv] government budget deficit [i.e. increase, decrease, no effect, indeterminate]? [i] Price: [ii] Real GDP: [iii] Unemployment: [iv] Budget Deficit: (c) Describe two different examples of government fiscal policy that could be used to correct the situation outlined at the start of the question. (2 marks) [ii 7 Use an appropriate diagram to illustrate the impact of stated event on the economy of the fiscal policies you have described. (d) When compared to the economy's position prior to the use of such policies, what specific impact would the fiscal policies have on the economy's [i] price level, [ii] level of real GDP, [iii] unemployment rate, and [iv] government budget deficit [i.e. increase, decrease, no effect, or is the outcome indeterminate]? [i] Price: [ii] Real GDP: [iii] Unemployment: [iv] Budget Deficit:_ 12

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ANSWER a The initial impact of the sudden and substantial increase in consumer and investment spending causing inflation can be illustrated using the ... View the full answer