1-1 Consider the following model.AD : Y = 620 + 10 M/PAS :Y = Y' + (P – P^e )where Y' = 750, P^e= 38, and M = 600(a) Explain why an increase in the money supply(M) increases output.(b) Graph AD and AS curves.(c) Compute the equilibrium level of price.(d) Suppose that the money supply increases to750. What is the short-run equilibrium level ofoutput and the price level?(e) What is the long-run price level with M = 900?1-2. Suppose that the government increasesexpenditures by $100×(1 + 0.02) billion whileincreasing taxes by $100x(1– 0.02) billion.Suppose that the MPC is 0.7 × (1 + 0.02) and thatthere is no crowding out effect.What is the combined effects of these changes?Why is the combined change not zero?

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1-1 Consider the following model. AD :Y = 620 + 10 M/P AS : Y = Y' + (P – P^e ) , where Y' = 750, P^e= 38, and M = 600 (a) Explain why an increase in the money supply (M) increases output. (b) Graph AD and AS curves. (c) Compute the equilibrium level of price. (d) Suppose that the money supply increases to 750. What is the short-run equilibrium level of

1-1 Consider the following model. AD :Y = 620 + 10 M/P AS : Y = Y' + (P – P^e ) , where Y' = 750, P^e= 38, and M = 600 (a) Explain why an increase in the money supply (M) increases output. (b) Graph AD and AS curves. (c) Compute the equilibrium level of price. (d) Suppose that the money supply increases to 750. What is the short-run equilibrium level of

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Saudi Arabia is an oil exporting country. AD : Y = 710 − 30P + 5G+3Poil， AS : Y = 10 + 5P − 2Poil Y is real GDP, P is the price level, G is the government purchases, and Poil is the world price of oil. (a)Firstly, Write down the equilibrium condition. Then, what is the equilibrium value of real GDP and the price level(assume G and Poil as known variables) (b)Draw the AD/AS graph to show when Poil rises in the world market, what will happen the AD and SAS curves. (c)Explain the price level effect and the output effect due to the change of the oil price.