13. If the short-run aggregate supply curve is horizontal, then a change in the money supply will change in the short run and change in the long run. A) B) C) D) only prices; only output only output; only prices both prices and output; only prices both prices and output; both prices and output

13. If the short-run aggregate supply curve is horizontal, then a change in the money supply will change in the short run and change in the long run. A) B) C) D) only prices; only output only output; only prices both prices and output; only prices both prices and output; both prices and output

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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3. (Note: You should wait to tackle this question until after lecture on Thursday, November 19.) Suppose that the economy is initiallyin long-run equilibrium: output is at potential and, as a result, inflation is steady. Now, suppose there is a permanent upward shift of the Federal Reserve's reaction function. a. What does this upward shift in the reaction function imply about the Fed's long-run target for the rate of inflation? b. What does the change in the reaction function imply that the Fed will do to the nominal interest rate and to the real interest rate in the short run? Describe two things the Fed could do to bring about this change in interest rates. c. What will be the short-run effect of the shift in the reaction function on GDP? d. Describe briefly how GDP returns to its potential level. (Hint: What will happen to inflation after a while? How will the Federal Reserve respond to that?)
134.) Suppose the Federal Reserve increases the reserve requirement ratio for banks in the United States. We can say that Unemployment will increase in the short-run Input usage will increase in the short-run Price Level will increase in the short-run Only a & c are correct
1) What is a tariff? . . . . 2) If the price level goes down, the real value of money will: . Remain unchanged. Decrease. It can increase or decrease. Increase. . . 3) Which of the following is true? • The equilibrium interest rate varies inversely with money supply. The money supply varies inversely with the price level. The money supply varies directly with the price level. The equilibrium interest rate varies directly with money supply. . . . A limit imposed on the production or sale of a product. A maximum or minimum price placed on a product by government regulation. A restriction placed on the importation of foreign products. A tax or duty levied on imports. 4) What does macroeconomic equilibrium imply? . The point where the quantity of Real GDP demanded equals the quantity of Real GDP supplied. It is where the aggregate demand curve intersects the LAS curve. • Full employment GDP. It is possible only at various price levels. The point where Real GDP is at capacity. . . .
2) Please answer the following parts: A. Describe the short-run effects of a rise in oil prices. B. Describe the adjustment to the long-run equilibrium. What variable should adjust for that to happen? C. Explain how the government should react in order to offset the effects of this shock on output. What will be the result regarding the price level? D. Explain how the Fed should react in order to offset the effects of this shock on output. What will be the result regarding the price level?
2. Suppose incomes in Europe increase, causing an increase in demand for U.S.-produced goods and services that are exported to Europe. (a) Describe and illustrate the short-run effects on the price level, real GDP, and employment. 2 (b) Assuming government does not intervene to fix the problem, describe and illustrate the impact on the price level, real GDP, employment, and wages in the long-run. HINT: To answer this question, begin your answer with the graphs in your answer to part (a) (just duplicate your graples in the answer to (a)). Then add to these graphs the long-run effects. (e) Given the state of the economy in the short-run (answer to problem (a)), suggest a change in taxes to reverse the problem without waiting for convergence to long-run equilibrium. Illustrate the short-run impact of this policy on price level, real GDP, and employment. Compared to the original long-run equilibrium, what happened to the price level and real GDP as a consequence of your government policy?…
8. Economic fluctuations I The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $600 billion. Suppose the government increases spending on building and repairing highways, bridges, and ports. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the increase in government spending. 240 AS 200 AD 160 AS 120 80 AD 40 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the short run, the increase in government spending on infrastructure causes the price level to the price level people expected and the quantity of output to the natural level of output. The increase in government spending will cause the unemployment rate to the natural rate of unemployment in the short run. Again, the following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $600 billion, before the increase in…
22. When the aggregate demand curve and the short-run aggregate supply curve intersect, A) the long-run aggregate supply curve must also intersect at the same point. B) inflation must be increasing. C) structural and frictional unemployment equal zero. D) the economy is in short-run macroeconomic equilibrium. 23. Interest rates in the economy have fallen. How will this affect aggregate demand and equilibrium in the short run? A) Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise. B) Aggregate demand will rise, the equilibrium price level will fall, and the equilibrium level of GDP will rise. C) Aggregate demand will fall, the equilibrium price level will fall, and the equilibrium level of GDP will fall. D) Aggregate demand will fall, the equilibrium price level will rise, and the equilibrium level of GDP will fall.
5. The slope and position of the long-run aggregate supply curve Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. O The inflation rate O The quantity of physical capital O The size of the labor force O The price level Suppose the economy produces real GDP of $30 billion when unemployment is at its natural rate. Use the purple points (diamond symbol) to piot the economy's long-run aggregate supply (LRAS) curve on the graph. 132 128 LRAS 124 120 116 112 108 104 100 10 20 30 40 50 60 70 80 OUTPUT (Billions of dollars) Suppose the government passes a law that reduces unemployment benefits in a way that causes unemployed workers to seek out new jobs more quickly. The policy will cause the natural rate of unemployment to fall , which will: Shift the long-run aggregate supply curve to the left Shift the long-run aggregate supply curve to the right Not affect…
8. Economic fluctuations I The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $600 billion. Suppose a sudden and severe contraction in the housing market reduces the value of homes and causes consumers to spend less. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the housing market slump. (2) 240 AS 200 AD 140 AS 120 80 AD 40 200 400 800 1000 1200 OUTPUT (BIlons of dollars) In the short run, the decrease in consumption spending associated with the housing market contraction causes the price level to * the price level people expected and the quantity of output to v the natural level of output. The housing market slump will cause the unemployment rate to the natural rate of unemployment in the short run. Again, the following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of…
6. Monetary policy in the long run Consider a hypothetical economy that produces at its long-run macroeconomic equilibrium at a price level of 100. Suppose the real GDP of this economy grows at an annual rate of 2%. If the velocity of money is constant, the central bank can maintain the price level at 100 by means of which of the following? Expanding the money supply by 2% per year O Reducing the money supply by 2% per year les of O Keeping the money supply constant Suppose the central bank enacts an unanticipated restrictive monetary policy. As a result, the supply of loanable funds leading to a in short-term interest rates. The following graph shows the goods and services market of this economy at full employment. Assume that potential output remains constant. Adjust the graph to show the long-run effect of an unanticipated restrictive monetary policy on the goods and services market by dragging the 511 8/2/ aggregate demand (AD) curve, the short-run aggregate supply (AS) curve, or…
9. Problems and Applications Q3 Suppose an economy is in long-run equilibrium. The central bank raises the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. Price Level LRAS Aggregate Supply Aggregate Demand Quantity of Output Aggregate Demand 10 Aggregate Supply Now adjust the graph to show the new long-run equilibrium. What causes the economy to move from its short-run equilibrium to its long-run equilibrium? Nominal wages, prices, and perceptions adjust upward to this new price level. The government increases taxes to curb aggregate demand. The government increases spending to increase aggregate demand. Nominal wages, prices, and perceptions adjust downward to this new price level. According to the sticky-wage theory of aggregate supply, nominal wages at the initial equilibrium are nominal wages at the short-run equilibrium resulting from the increase in the money…