2. The graph below shows the AD-AS model in short-run equilibrium at a price level, Po, and a level of real GDP, Yo. Label the following: both axes, AD, SRAS, LRAS, Po, Yo, and Yp. A. Is this SR equilibrium a recessionary gap or an inflationary gap? B. Assume the Fed decides to act. How would you suggest they use or alter each of the following? - Open Mkt Operations - Required Reserve Ratio - Discount/Federal Funds Rates C. Explain carefully how the changes in part B eventually alter AD. Explain each step. D. Show the effects of these changes in the space above. Assume this intervention brings the economy back to potential GDP. E. As the economy moves from Yo to Yp, what happens to the following measures of the aggregate economy? - Real GDP - the unemployment rate - The price level - the rate of inflation

2. The graph below shows the AD-AS model in short-run equilibrium at a price level, Po, and a level of real GDP, Yo. Label the following: both axes, AD, SRAS, LRAS, Po, Yo, and Yp. A. Is this SR equilibrium a recessionary gap or an inflationary gap? B. Assume the Fed decides to act. How would you suggest they use or alter each of the following? - Open Mkt Operations - Required Reserve Ratio - Discount/Federal Funds Rates C. Explain carefully how the changes in part B eventually alter AD. Explain each step. D. Show the effects of these changes in the space above. Assume this intervention brings the economy back to potential GDP. E. As the economy moves from Yo to Yp, what happens to the following measures of the aggregate economy? - Real GDP - the unemployment rate - The price level - the rate of inflation

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5. Short-run shocks in the AD-AS model The following graph shows an economy that is initially in equilibrium. Then, a large decline in stock prices occurs, reducing the wealth of individuals. On the graph, show the economic impact of this event in the short-run aggregate demand and aggregate supply (AD–AS) model by shifting one or both curves. Show the movement of the AD and SRAS on a graph. This event is an example of a decrease in AD/increase in AD/ decrease in SRAS/ increase in SRAS. As a result, the price level declines/rises, and the equilibrium real GDP declines/rises.
Can you please make sure that it is clear in which each line is shifting No handwritting solution
The economy of Ashenvale is currently in a long-run equilibrium, depicted by point E, on the graph. Economy of Ashenvale Suppose that there is a negative AD shock to the economy and the AD curve shifts to the left, as shown by the AD, 2,400- curve on the graph. The following steps are designed so that you can explain how the economy adapts to the shock. 2,200 a. Using the point drawing tool, plot and label the new short-run equilibrium after this AD shock 2,000 1,800- AS Carefully follow the instructions above, and only draw the required object. A 1,600- E 1,400- ...... In the short run, the equilibrium price will be approximately $ and the new equilibrium quantity will be approximately 1,200- ADn 1,000 E B00 AD, 60 400 200- 6,000 Roal GDP (Y) 2,000 4 00 B,000 10,000 Price Level (P)
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The economy of Winterspring is currently in an equilibrium depicted by point E, on the graph. Economy of Winterspring Now suppose that there is a demand shock in the economy and the AD curve shifts from AD, to AD,, as shown by the graph. 2400- 2.200- AS Suppose that there is no monetary validation. 2.000- 1.800- Using the point drawing tool, show the short-run equilibrium that the economy will move into in this case. Label this point E,. A 1,600- 1400 Carclully follow the instructions above, and only draw the required objects. 1.200 900 600 AD 3,000 5,000 7.c00 9.c00 Real GDP (Y) 1,000 11,000 Price Level (P)
1. Discuss what factors shift the LRAS curve to the right (what increases long run aggregate supply). 2. Explain the following shifts by using the LRAS-AD diagram : a) Increase in both equilibrium real GDP and price level. b) A decrease in equilibrium real GDP and an increase in price level.
Q1: Illustrate each of the following situations with a graph showing AS and AD curves, and explain whathappens to the equilibrium values of the price level and aggregate output:a: A decrease in G with the money supply held constant by the Fed.b: a decrease in the price of oil with the money supply held constant by the Fed.
In the dynamic model of AD-AS in the diagram to the right, the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues policy. This will result in OA. short term interest rates higher than what would occur if no policy had been pursued. OB. unemployment rates higher than what would occur if no policy had been pursued. OC. real GDP lower than what would occur if no policy had been pursued. OD. inflation higher than what would occur if no policy had been pursued. MIDD Price level 102 100 LRAS, A 10 Real GDP B 00 LRAS AD. 10.8 11 SRAS₁ SRAS, AD₂
Assume that the general level of prices increases. Which of the following best describes what happens to the money market, AE model and AD curve? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a We shift the AD curve to the left because the interest rate increases, the aggregate expenditures curve decreases and equilibrium Y decreases. We shift the AD curve to the right because the interest rate decreases, the aggregate expenditures curve increases and equilibrium Y increases. с We move along the AD curve because the interest rate decreases, the aggregate expenditures curve increases and equilibrium Y increases. We move along the AD curve because the interest rate increases, the aggregate expenditures curve decreases and equilibrium Y decreases.
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Explain the effect, if any, that each of the following occurrencesshould have on the aggregate demand curve.a. The Fed lowers the discount rate.b. The price level decreases.c. The federal government increases federal income tax rates inan effort to reduce the federal deficit.d. Pessimistic firms decrease investment spending.e. The inflation rate falls by 3 percent.f. The federal government increases purchases to stimulatethe economy.
Suppose the economy begins at potential output when the federal government decreases taxes. A. Graph the impact of this action using AS-AD. Note the original equilibrium as point "A" and the short-run equilibrium after the policy action as point "B". B. Graph the transition from the short run to the long run.