Q3: Consider a baseline long run equilibrium where output is 22 trillion dollars, and the price level is 100. Note: In the Long Run Steady State Equilibrium, Price expectation is the same as price level & unemployment is 5% or lower. None of these are guaranteed in the short run. Usually, short run equilibrium is called an underemployment equilibrium.• Starting from the baseline, suppose COVID 19 hits this economy. If this disease only makes workers sick (everything else remaining constant) can you show how would the short run steady state equilibrium will be disrupted? A Keynesian Macroeconomist proposes the use of a massive expansionary fiscal policy. Would you agree, disagree?• You should answer each step in the following answer 3 table. Q4: Continuing from Question 3: What will be the shape of the Phillips Curve because of the Keynesian Colleague's massive expansionary fiscal policy (from Question 3)? Why? Please explain in detail.•You should answer each step in the following answer 4 table. **Answer 3)**| **Steps** | **Your Answers** ||-----------|-------------------|| **Step 1)** What happens in the short run to equilibrium price level and aggregate quantity & why? (Think about which curve shifts in which direction and why & where is the new short run equilibrium?) | || **Step 2)** What happens to the initial equality between price level and price expectations because of COVID19? | || **Step 3)** What happens to price expectations in the long run? (The market adjustment phase) | || **Step 4)** What happens next in the market adjustment phase? (Think about which curve shifts in which direction and why & where is the new short run equilibrium?) | || **Step 5)** Now that your Keynesian Colleague has proposed a massive expansionary fiscal policy, do you think it will work as an in-built stabilizer (i.e., return the economy back to a long run: would it stop market adjustment)? Are there policies that you will propose as a Classical Macroeconomist that is distinct from your Keynesian Colleague's proposal? | |In this table, each step provides a guided question related to analyzing the effects of various economic scenarios on equilibrium price levels, aggregate quantity, and market expectations. The questions aim to deepen understanding of macroeconomic adjustments, particularly in the context of events like the COVID-19 pandemic and proposed fiscal policies. Each step requires you to consider the movements of economic curves and anticipate changes in both the short and long term. For educational clarity, fill in your answers to demonstrate your understanding and reasoning behind each economic phenomenon. **Answer 4)**| Steps | Your Answers ||-------|--------------|| **Step 1)** What will be the shape of the Phillips Curve (Upward / Downward/ Vertical/Horizontal). I want you to think about what variable is measured on the horizontal axis of the Phillips Curve Graph and what variable is measured in the Phillips Curve Vertical axis. Then tell us what it means to say that Phillips Curve is upward or downward sloping or vertical or horizontal. | || **Step 2)** Remember the policy your Keynesian Colleague picked in Question 3: why did this policy create a downward/upward/vertical/horizontal sloping Phillips Curve? | |

Underemployment equilibrium depicts a state in an economy where unemployment is tirelessly higher…

Answered: 3: Consider a baseline long run…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Question

Q3: Consider a baseline long run equilibrium where output is 22 trillion dollars, and the price level is 100. Note: In the Long Run Steady State Equilibrium, Price expectation is the same as price level & unemployment is 5% or lower. None of these are guaranteed in the short run. Usually, short run equilibrium is called an underemployment equilibrium.
• Starting from the baseline, suppose COVID 19 hits this economy. If this disease only makes workers sick (everything else remaining constant) can you show how would the short run steady state equilibrium will be disrupted? A Keynesian Macroeconomist proposes the use of a massive expansionary fiscal policy. Would you agree, disagree?
• You should answer each step in the following answer 3 table.

Q4: Continuing from Question 3: What will be the
shape of the Phillips Curve because of the
Keynesian Colleague's massive expansionary fiscal
policy (from Question 3)? Why? Please explain in
detail.
•You should answer each step in the following answer 4 table.

**Answer 3)**

| **Steps** | **Your Answers** |
|-----------|-------------------|
| **Step 1)** What happens in the short run to equilibrium price level and aggregate quantity & why? (Think about which curve shifts in which direction and why & where is the new short run equilibrium?) | |
| **Step 2)** What happens to the initial equality between price level and price expectations because of COVID19? | |
| **Step 3)** What happens to price expectations in the long run? (The market adjustment phase) | |
| **Step 4)** What happens next in the market adjustment phase? (Think about which curve shifts in which direction and why & where is the new short run equilibrium?) | |
| **Step 5)** Now that your Keynesian Colleague has proposed a massive expansionary fiscal policy, do you think it will work as an in-built stabilizer (i.e., return the economy back to a long run: would it stop market adjustment)? Are there policies that you will propose as a Classical Macroeconomist that is distinct from your Keynesian Colleague's proposal? | |

In this table, each step provides a guided question related to analyzing the effects of various economic scenarios on equilibrium price levels, aggregate quantity, and market expectations. The questions aim to deepen understanding of macroeconomic adjustments, particularly in the context of events like the COVID-19 pandemic and proposed fiscal policies. Each step requires you to consider the movements of economic curves and anticipate changes in both the short and long term. For educational clarity, fill in your answers to demonstrate your understanding and reasoning behind each economic phenomenon.

**Answer 4)**

| Steps | Your Answers |
|-------|--------------|
| **Step 1)** What will be the shape of the Phillips Curve (Upward / Downward/ Vertical/Horizontal). I want you to think about what variable is measured on the horizontal axis of the Phillips Curve Graph and what variable is measured in the Phillips Curve Vertical axis. Then tell us what it means to say that Phillips Curve is upward or downward sloping or vertical or horizontal. | |
| **Step 2)** Remember the policy your Keynesian Colleague picked in Question 3: why did this policy create a downward/upward/vertical/horizontal sloping Phillips Curve? | |

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.