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:
Exchange Rates: US$1 = 6.43 yuan in 2011 and US$1 = 6.12 yuan in 2013.
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.