4) Suppose that initially the economy is at equilibrium at a level of output, which is lower than the potential output (and so a recessionary gap exists). Suppose that the government cuts taxes in response. But because of legislative delays, the tax cut is not put in place for 18 months. Using an AD-AS diagram and assuming that the government's objective is to stabilize output and inflation, show how this policy action might actually prove to be Explain. counter-productive.

4) Suppose that initially the economy is at equilibrium at a level of output, which is lower than the potential output (and so a recessionary gap exists). Suppose that the government cuts taxes in response. But because of legislative delays, the tax cut is not put in place for 18 months. Using an AD-AS diagram and assuming that the government's objective is to stabilize output and inflation, show how this policy action might actually prove to be Explain. counter-productive.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

1. Imagine an economy, where the SRAS in terms of inflation is given by II=5+Y, where Y is output. Imagine that the long run AS curve is given by Y=2. (25 marks) a) Give the equation of the AD curve (you can take liberties), if we assume that initially, the economy is at its long-run equilibrium. Justify. b) Imagine that your chosen AD curve's intercept goes up by one unit due to an expansionary monetary policy. What will be the new final equilibrium after this change? Justify. c) What will be the equilibrium after two periods of adjustment? Justify. d) Assume that before all the changes in the economy, in the initial, long-run equilibrium, the interest rate was 4 percent. Give an IS and an LM curve that are compatible with this initial equilibrium. Justify. e) What are the IS and LM curves going to be at the very end of the adjustment process, i.e., in the new long run equilibrium? Justify.
1. Assume that the AD curve of the economy is given by Y = 15 – 100t + ñ, where m is a demand shock (animal spirits, government spending, or money supply). The AS curve is given by 1 TT = En + (Y – Ỹ) + ū, 50 where v is a supply shock (oil price, productivity). The variable n is the inflation rate, En is expected inflation rate, Y is output, and Y is long-run output. For numerical values, Y = 10, ñ = ū = 0. Answer each equation using both graphs and math. a. Plot the above AD-AS curves on the (Y, t) diagram. Describe the slopes of both the AD curve and the AS curve. b. If the economy is currently at its long-run trend, what should be the equilibrium output? What is the equilibrium inflation rate in this economy? What should be the equilibrium expected inflation rate in this economy? Assume that expected inflation rate is constant at 5 percent. What happens when the oil price increases by 5 percent (ū = 0.05)? What is the equilibrium level of output? C. What is the equilibrium level of…
can you tell me if these answers are correct? they are true or false. 1)The output axis of the AD/AS curve is an approximation for the unemployment/employment level in the economy. -true 4) an increase in AD, given an upward sloping AS curve, will be inflationary, even beyond full employment output. -true 5) an increase in structural unemployment would be reflected as a shift of the vertical portion of the AS curve to the left- true
question 2: In Figure 2, what are the factors that may cause the aggregate demand to shift from AD to AD1? What is the difference between demand pull inflation, cost push inflation, and recession?
Consider the figure to the right. If this country's government decides to increase its short-term spending, what happens to the short-run equilibrium price level, and why? Is this an example of demand-pull or cost-push inflation? Explain. 1.) Using the line drawing tool, draw either a new aggregate demand (AD) curve or a new short-run aggregate supply (AS) curve that shows the effects of temporary government spending increases. Properly label your line. 2.) Using the point drawing tool, indicate the economy's new short-run equilibrium price and level of real GDP. Label this point 'E₂.' Carefully follow the instructions above, and only draw the required objects. Price Level LRAS₁ Real GDP per Year (S trillions) AS₁ AD₁
This is a 3 part question. Thank you
Q1. Phillip's Curve: For each of the following draw an AD-AS diagram and a corresponding Phillip's curve assuming the following: (1) actual RGDP is $9,200 (2) full employment RGDP is $10,000 (3) the natural rate of unemployment is 5%; (4) actual unemployment fluctuates around 5% a. Show in both diagrams the effect of an increase in government purchases that pushes actual RGDP up to full employment b. Again assume actual GDP is at $9,200, show in both diagrams the effect of the Federal Reserve bank selling versus buying treasury bonds to banks. c. Again assume actual GDP is at $9,200, show in both diagrams the effect of self-correction mechanism.
1. Imagine an economy, where the SRAS in terms of inflation is given by II=5+Y, where Y is output. Imagine that the long run AS curve is given by Y=2. (25 marks) a) Give the equation of the AD curve (you can take liberties), if we assume that initially, the economy is at its long-run equilibrium. Justify. b) Imagine that your chosen AD curve's intercept goes up by one unit due to an expansionary monetary policy. What will be the new final equilibrium after this change? Justify. c) What will be the equilibrium after two periods of adjustment? Justify. d) Assume that before all the changes in the economy, in the initial, long-run equilibrium, the interest rate was 4 percent. Give an IS and an LM curve that are compatible with this initial equilibrium. Justify. e) What are the IS and LM curves going to be at the very end of the adjustment process, i.e., in the new long run equilibrium? Justify.
Q17. Summarize the Keynesian model: A. The Keynesian model emphasizes aggregate supply by focusing on the underlying determinants of output and employment in markets, and thus tends to put more emphasis on economic growth and how labor markets work. B. The short-term Keynesian model is built on the importance of aggregate demand as a cause of business cycles and a degree of wage and price rigidity, and thus does a sound job of explaining many recessions and why cyclical unemployment rises and falls. C. The short-term Keynesian model is built on the importance of aggregate supply as a cause of business cycles and a degree of wage and price rigidity, but does a poor job of explaining many recessions and why cyclical unemployment rises and falls.
Is an adverse supply shock likely to give rise to an inflationary gap or a recessionary gap? Why? (Hint: Draw a diagram.)
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
Draw and properly label an AD-AS model to show Keynesian, intermediate, and neoclassical zones. Then, briefly explain the levels of unemployment, inflation and real GDP in each zone, and also confirm whether all three goals of a macro economy are being achieved in each zone. 2. Draw and properly label the AD-AS graphs or one AD-AS graph to show recessionary and inflationary gaps. Then, discuss in detail how Keynesians suggest that recessionary and inflationary gaps be closed. 3. Draw and properly label AD-AS graphs or one AD-AS graph to show recessionary and inflationary gaps. Then, discuss in detail how neoclassicals suggest that recessionary and inflationary gaps be closed.