Suppose That the Economy Is in a Recession as a Result

question 126

Essay

Suppose that the economy is in a recession as a result of a fall in investment spending and real GDP is below potential GDP.
(A)Illustrate this on an aggregate demand inflation diagram.
(B)When real GDP falls,what happens to tax revenue,government spending,and the budget balance?
(C)If a balanced budget amendment were in place,what would have to happen to government spending and/or taxes? Illustrate on the diagram.
(D)It is wise to allow the government to run a deficit during a recession and a surplus during an expansion.Please answer true or false and explain.

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Definitions:

Lifelong Poverty

A state of living in poverty for a significant portion or the entirety of an individual's life, often resulting in chronic hardships.

Adrenal Gland

An endocrine gland above the kidney that produces hormones such as adrenaline and cortisol, involved in the body's stress response.

Cortisol

A steroid hormone produced by the adrenal glands, often referred to as the "stress hormone" because its levels increase in response to stress.

Metabolism

The complex of life-sustaining chemical transformations within the cells of living organisms.