Explain how each of the following will affect the economy, by analyzing each case in an SRAS-AD diagram and determine in each case the effects on real GDP and the general price level:The interest rates are raised by the Fed.”Fracking” for gas and oil expands, and oil & energy prices in the U.S. fall.The stock market soars and American wealth expands significantly.The government cuts government spending on transfer payments.Many labor unions demand, and get, large wage-increases.Exchange Rates: US$1 = 6.43 yuan in 2011 and US$1 = 6.12 yuan in 2013.The data show that the dollar appreciated against the Chinese yuan. True or False?The indicated change in the exchange rate will tend to (increase/decrease) US exports to China and (increase/decrease) imports from China.Applying the SRAS-AD model, we’d say that the effect of this given change in the exchange rate is to make the general price level in the US (increase/decrease), while total production and employment will (increase/decrease).If the government cuts personal income taxes, then AD would tend to increase. But this effect on AD might be weakened by what?Transfer payments (Tr) have a more direct impact on AD, more so than government purchases (G). True or False? Explain briefly.The macroeconomic problem faced by an economy whose actual GDP is below potential GDP is _____________ (unemployment / inflation). To deal with this situation, the government needs to shift AD to the _________________ (right / left) where the intended goal is to increase _______________ (GDP / gen P).If we already have a budget deficit, then an expansionary fiscal policy will tend to reduce the deficit. True or False? Explain.
Effects on real GDP
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