10-4 Summarize what can shift an economy’s potential output in the long run (Supply Shocks) Give an example of an adverse supply shock and illustrate graphically. Now do the same for a beneficial supply shock.

10-4 Summarize what can shift an economy’s potential output in the long run (Supply Shocks) Give an example of an adverse supply shock and illustrate graphically. Now do the same for a beneficial supply shock.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter10: Aggregate Supply

Section: Chapter Questions

Problem 4.6P

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1. Explain what would happen in the following markets given the following demand or supply shocks. In your answer clearly state what happened to supply or demand (whether it increased or decreased) and what would likely happen to the equilibrium price and quantity as a result, other factors constant. A.) Market: Grapes. Shock: A major scientific study suggests that individuals who regularly consume grapes liveon average five years longer and have a reduced risk of Alzheimer’s disease. B.) Market: Electric vehicles. Shock: There is a significant decrease in the price of U.S. semiconductors, whichare used as an input in the production of electric vehicles. C.) Market: Used cars. Shock: There is a significant decrease in the price of new cars, which are a substitute ofused cars. D.) Market: Eggs. Shock: The avian flu leads to a significant reduction in the number of egg laying hens.
1. Suppose we observe that US economy is experiencing low unemployment (3%), faster-than-average real GDP growth (4%), and increasing inflation (rising from 2% to 4%). a. Draw the AS/AD graph for the kind of shock that would generate these symptoms, and give an example of how that kind of shock might happen. What kind of change in the economy leads to this kind of AS/AD graph? b. Briefly discuss what you see in the graph that corresponds to each of the symptoms. E.g. what part of the picturetells you we have low unemployment? b)Describe the two goals that the Federal Reserve is required to pursue with monetary policy. Given these two goals, what specific actions will the Fed take in reaction to the shock, and how will these affect real GDP in the short run? Be sure to explain how the proposed action helps achieve the Fed's goals.
Economics 3040 Intermediate Macro HW4: An Adverse Demand Shock For all graphs label: both axis, all lines or curves, and all equilibrium values. Also be sure that the direction of shifts in lines and changes in equilibrium values are clear. Your graphs should be large enough to easily interpret. Turn in your graphs on paper at the beginning of the March 26th class meeting. (1) Sketch a graph of the goods market (AD-SRAS-LRAS) and a graph of the labor market with both markets initially in long run equilibrium. Label the initial values of real GDP, the price level, employment, and the nominal wage. Now show the effect of an adverse demand shock on both graphs and label the new values of all variables. (2) Sketch a graph of the goods market initially in a recession. Label potential real GDP, real GDP in the current recession, and the current price level. Also label the recessionary gap. Now show how an increase in government spending may end the recession. (3) Sketch a graph of the goods…
3. Most global markets have been reporting severe contractions, which mainly responding to the COVID-19 pandemic. The situation is worsened by the decrease in people’s confidence in the government as policymakers, spreading a wave of pessimism towards the future prospect of the economy. Explain how such wave of pessimism, ceteris paribus, may lead to short-term economic fluctuations, which will eventually work to push the economy back towards its long-run equilibrium. Use relevant diagrams to support your answer.
14. In the accompanying diagram, the economy is in long- run macroeconomic equilibrium at point E when an oil shock shifts the short-run aggregate supply curve to SRAS2. Based on the diagram, answer the following questions. LRAS Aggregate price level SRAS2 SRAS1 E1 P1 .. AD1 Y1 Real GDP a. How do the aggregate price level and aggregate output change in the short run as a result of the oil shock? What is this phenomenon known as? b. What fiscal or monetary policies can the govern- ment use to address the effects of the supply shock? Use a diagram that shows the effect of policies cho- sen to address the change in real GDP. Use another diagram to show the effect of policies chosen to address the change in the aggregate price level. c. Why do supply shocks present a dilemma for govern ment policy makers?
Show the effect this shock has on the market for pistachios by shifting the demand curve, supply curve, or both. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. PRICE (Dollars per ton) 40 32 24 16 8 0 8 16 24 Demand QUANTITY (Thousands of tons) Supply 32 40 Demand -- Supply ?
Specific subject - Macroeconomic Analyse the case of a negative supply shock caused by an increase in oil prices and compare with the shock caused by the Covid pandemic. What would be the similarities and differences between the two shocks? What would be the effect of an expansionary economic policy (increase in aggregate demand)? Graph What measures or government intervention would be most appropriate to deal with both types of shocks? Graph Compare the adjustment in both cases with and without government intervention. Graph
The graph shows the aggregate demand and long-run aggregate supply (LRAS) curves for a given economy. Show the effect of a real shock that results in potential real GDP changing to 6% by shifting the relevant curve or curves. Inflation rate (%) 4 LRAS 12 11 10 9 8 6 3 Aggregate Demand 2 1 0 -4 -2 ° 2 4 6 8 10 Real GDP growth rate (%) 12 14 16 Which three factors could have caused this change in potential real GDP? Assume this is a typical economy relying on inputs such as coal and oil. Factors Answer Bank riots and political instability good farming weather oil price increase coal price decrease increased consumer confidence an improvement in technology an increase in exports a major bird flu pandemic
Illustrate and interpretthe short-run and longrun effects of temporary and permanentsupply shocks
67 please quickly thanks ! Consider an economy initially in a long-run equilibrium. A positive AS shock will _____ the price level and _____ output in the short run. In the long run, the price level will _____ and output _____. a.Increase; increase; return to its initial level; will be restored to potential output. b.Decrease; increase; decrease further; will be restored to potential output. c.Decrease; increase; return to its initial level; will be restored to potential output. d.Decrease; decrease; decrease further; will decrease further. e.Increase; increase; decrease; will be restored to potential output.
6 What is a supply shock and why might it lead to stagflation? Explain & Provide an example using an aggregate supply & aggregate demand graph .
Graph an economy which suffers a negative supply shock. How does this effect inflation (increase/decrease) and unemployment (increase/decrease)? What is the name for this situation? What is the relationship between unemployment and inflation as the economy heads into a recession normally? How about the relationship as the economy moves to the peak of the business cycle?