5. Study Questions and Problems #5 Initially, the economy is operating at the natural rate of 6% unemployment. The anticipated rate of inflation is 6%, and the actual inflation rate is also 6%. According to adaptive expectations, inflation run. In the long run, the unemployment rate will be 6%. . and the unemployment rate, Suppose that in the next period, there is an increase in aggregate demand that causes an unexpected rise in the inflation rate to 10%. According to adaptive expectations, inflation and the unemployment rate short run. In the long run, the unemployment rate will be 6%. Suppose that in the next period, there is an increase in aggregate demand that causes an unexpected rise in the inflation rate to 12%. According to adaptive expectations, inflation run. In the long run, the unemployment rate will be 6%. . and the unemployment rate 6% in the short 6% in the 6% in the short

5. Study Questions and Problems #5 Initially, the economy is operating at the natural rate of 6% unemployment. The anticipated rate of inflation is 6%, and the actual inflation rate is also 6%. According to adaptive expectations, inflation run. In the long run, the unemployment rate will be 6%. . and the unemployment rate, Suppose that in the next period, there is an increase in aggregate demand that causes an unexpected rise in the inflation rate to 10%. According to adaptive expectations, inflation and the unemployment rate short run. In the long run, the unemployment rate will be 6%. Suppose that in the next period, there is an increase in aggregate demand that causes an unexpected rise in the inflation rate to 12%. According to adaptive expectations, inflation run. In the long run, the unemployment rate will be 6%. . and the unemployment rate 6% in the short 6% in the 6% in the short

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The proponents of rational expectations argue that it is possible to reduce inflation without causing any recession if: (i) The policymakers' plan to reduce inflation is announced before people form their expectations. (ii) The policymakers' plan to reduce inflation adjusts when people change their expectations. (iii) The people believe the policy announcement on inflation reduction. Either (i) or (ii) Both (i) and (iii) O c. c. Either (i) or (iii) O d. Both (i) and (ii) a. O b.
1. Aggregate demand, aggregate supply, and the Phillips curve In the year 2027, aggregate demand and aggregate supply in the imaginary country of Patagonia are represented by the curves AD27 and AS on the following graph. The price level is currently 102. The graph also shows two potential outcomes for 2028. The first possible aggregate demand curve is given by the curve labeled ADA curve, resulting in the outcome given by point A. The second possible aggregate demand curve is given by the curve labeled ADB, resulting in the outcome given by point B. PRICE LEVEL 108 107 106 105 104 103 102 101 100 0 AD2027 2 AS ADB ADA 10 12 14 OUTPUT (Trillions of dollars) 16 (? Suppose the unemployment rate is 7% under one of these two outcomes and 5% under the other. Based on the previous graph, you would expect to be associated with the lower unemployment rate (5%). If aggregate demand is low in 2028, and the economy is at outcome A, the inflation rate between 2027 and 2028 is Based on your answers…
According to new classical economists, if a decrease in aggregate demand is correctly anticipated, the short-run aggregate supply curve will shift so that there will be no change in Real GDP. same time the AD curve shifts O a rightward; rightward O b. leftward; rightward i cleftward; rightward O d. rightward; leftward e none of the above G Hide Feedback Incorrect at the
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8. The sources of inflation During World War I and World War II, the U.S. government spent large sums of money on the war effort. Following both of these periods, the United States experienced double-digit inflation. The following diagram shows the aggregate demand (AD) and aggregate supply (AS) curves for the United States before the inflationary period. Shift one of the curves to illustrate the primary cause of the inflation described in the preceding paragraph. PRICE LEVEL REAL GDP AD AS 8 2 4 2 This kind of inflation is called (demand-pull / cost-push) inflation. Inflation of this type is accompanied by (a decrease / an increase) in aggregate output.
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ONLY G and E Please! I put the other page on there with A-D only for reference to the economic situation.
2. The Phillips curve in the short run and long run The following graph plots aggregate demand (AD) and aggregate supply (AS) for the imaginary country of Iguazu in the year 2027. Suppose the natural level of output in this economy is $7 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. PRICE LEVEL 108 107 LRAS AS 108 105 104 103 102 101 A AD AD 100 2 4 10 12 14 16 OUTPUT (Trillions of dollars) Outcome C Economists forecast that if the government takes no action and the economy continues to grow at the current rate, aggregate demand in 2028 will be given by the curve labeled ADA, resulting in the outcome given by point A. If, however, the government pursues an expansionary policy, aggregate demand in 2028 will be given by the curve labeled ADB, resulting in the outcome given by point B. The following table presents projections for the unemployment rates that would occur at point A and point B.…
5. An oil shock: Consider an economy that begins with output at its potential level and a relatively high inflation rate of 6%, reflecting some recent oil price shocks. As the head of the Federal Reserve, your job is to pick a sequence of short-run output levels that will get the rate of inflation back down to 3% no later than 3 years from now. Your expert staff offers you the following menu of policy choices: -Short-run output- -Inflation- Year 2 3% 3% 4% Option 1 2 ETUA 3 Year 1 -6% 120m - 4% NOMIN -2% Year 2 0 BEVEST -2% of evingut -2% Year 3 0 101201 0 -2% Year 1 3% ette 4% o ba 5% di (d) Explain the general trade-off that policymakers are faced with according to the Phillips curve. Year 3 3% 3% 0500 3% (a) According to these numbers, what is the slope of the Phillips curve? (b) If you as a policymaker cared primarily about output and not much about the inflation rate, which option would you recommend? Why? (c) If you cared primarily about inflation and not much about output, which…
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2. The Phillips curve in the short run and long run In the year 2023, aggregate demand and aggregate supply in the fictional country of Gurder are represented by the curves AD2023 and AS on the following graph. Suppose the natural rate of output in this economy is $6 trillion. NOTE: OPTIONS FOR BLANKS ARE: 1. The short-run Phillips curve is ______ (a vertical OR a downward sloping OR an upward sloping) 2. Because output at point C is _____ (less than OR greater than OR equal to) the natural rate of output, the unemployment rate associated with outcome C is _____ (less than OR greater than OR equal to) 3. This line is _____ (a vertical OR a downward sloping OR an upward sloping)
5. The stock market crash has caused a great number of asset prices to drop sharply.If people’s expectation on current inflation level remain unchanged, what wouldbe the effects of this crisis to inflation and unemployment? Explain and useappropriate diagrams to support your answer.