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Homework answers / question archive / Draw correctly labeled graphs for each of the 3 macroeconomic conditions For each of the 3 macroeconomic conditions, draw what the AD/AS model would look like, the correlating level of production on a PPC, the current Business Cycle position, and which fiscal policy actions could correct the condition
Draw correctly labeled graphs for each of the 3 macroeconomic conditions
For each of the 3 macroeconomic conditions, draw what the AD/AS model would look like, the correlating level of production on a PPC, the current Business Cycle position, and which fiscal policy actions could correct the condition. Submit a photo of your drawings.
Draw correctly labeled graphs for each of the 3 macroeconomic conditions
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Macroeconomic Condition |
AD/AS Model Graph Label: Axes, Curves, Full Employment Y & Y |
Production Possibilities Curve Label: Axes, PPC, Point X for current level of output |
Business Cycle Label: Axes, Peak, Recession, Trough, Expansion, Point X for current level of output |
Fiscal Policy Options to Fix |
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Full Employment |
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Recessionary Gap |
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Infationary Gap |
All the graphs are in the image .
Symbols used: In all the graphs A represnts Full employment , B as recessionary gap and C as inflationary gap.
1.AD/AS GRAPH
LRAS is Long run aggregate supply and AD&AS are short run aggregate demand and supply respectively.
During recession AD falls so there is a leftward shift in AD and during inflation AD increases hence a shift towars right.
2. PPC CURVE
Whenthere is full employment all the resources are fully employed while in case of recession there are many unemployes resources. Also, in case of inflation there is overutiliztion of resources.
The three curves are exactly same in this case.
3.Business cycle
When there is
Full employment: Economy will be at A
Recession: Economy will be at trough. Infaltion: Economy will be at peak.
All 3 graphs are same ignore if they are not upto scale.
FISCAL POLICY NEEDED
Full Employment: Govt. will keep on increasing the expenditure to increae GDP. In doing so it assumes the resources will also grow in the same manner it ends up causing the inflation.
Recession: Since there is lack of AD in economy so Govt. will increase expenditure to increase income which will further increase consumption and hence Aggregate Demand. In PPC it will increae level of output and in Business cycle the economy will tend to move towards full employment.
Inflation: Since there is excess of AD in economy so Govt. will decrease expenditure to decrease income which will further decrease consumption and hence Aggregate Demand. In PPC it will increae level of output and in Business cycle the economy will tend to move towards full employment.
please see the attached file for the complete solution.
