3/25/22, 8:59 PMAssignment Print Viewb. To restore this economy to its long-run equilibrium, the Federal Reserve needs to shift theaggregate demand curve to the leftV by $billion.c. If the Federal Reserve were to reduce investment demand to cause the shift in aggregate demand,with an MPC = 0.75, investment demand would need to decrease byneeded change in aggregate demand.billion to achieve the%3Dd. Use the money market and investment demand graphs to illustrate the monetary policy change theFederal Reserve would need to make in order to restore aggregate demand and real GDP back to thelong-run equilibrium levels.Instructions: In the investment demand graph below, use the tool provided "Investment" to plot a newlevel of investment demand.Investment Demand11Tools10--Investment8.75431246.810 12 14 16 18 20Quantity of Investment (billions of dollars)Instructions: In the money market graph below, use the tool provided "Ms,1" to draw a new moneysupply curve. Use the tool provided "New Equilibrium" to plot a new equilibrium interest rate.https://ezto.mheducation.com/hm.tpx?todo=c15SinglePrintView&singleQuestionNo=8.&postSubmission View=13252718377637707&wid=13252718466136846&rol... 2/3Interest Rate (percent)LO 3/25/22, 8:59 PMAssignment Print View8.Assume the economy is currently in equilibrium at its full-employment level of output, the moneymarket is in equilibrium, and the MPC = 0.75.a. Suppose there is an increase in government spending that causes aggregate demand to increaseby $16 billion. Show the increase in aggregate demand on the graph.Instructions: Use the tool provided "Aggregate Demand" to plot the new aggregate demand curve.Use the tool provided "New GDP" to plot the new equilibrium.AD and AS Model200ToolsLRAS180AS160Aggregate Dei New GDP1401201008060AD402016 32 48 64 80 96 112 128 144 160Real GDP (billions of dollars)Now suppose the Federal Reserve wants to keep inflation from hurting the economy and maintainoutput at the full-employment level.https://ezto.mheducation.com/hm.tpx?todo=c15SinglePrintView&singleQuestionNo=8.&postSubmissionView=13252718377637707&wid=13252718466136846&rol...1/3Price Level

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8. Assume the economy is currently in equilibrium at its full-employment level of output, the money market is in equilibrium, and the MPC = 0.75. a. Suppose there is an increase in government spending that causes aggregate demand to increase by $16 billion. Show the increase in aggregate demand on the graph. Instructions: Use the tool provided "Aggregate Demand" to plot the new aggregate demand curve. Use the tool provided "New GDP" to plot the new equilibrium. AD and AS Model 200 Tools LRAS 180 AS 160 Aggregate Dei New GDP 140 120 100 80 60 AD 40 20 16 32 48 64 80 96 112 128 144 160 Real GDP (billions of dollars) Now suppose the Federal Reserve wants to keep inflation from hurting the economy and maintain output at the full-employment level. Price Level

8. Assume the economy is currently in equilibrium at its full-employment level of output, the money market is in equilibrium, and the MPC = 0.75. a. Suppose there is an increase in government spending that causes aggregate demand to increase by $16 billion. Show the increase in aggregate demand on the graph. Instructions: Use the tool provided "Aggregate Demand" to plot the new aggregate demand curve. Use the tool provided "New GDP" to plot the new equilibrium. AD and AS Model 200 Tools LRAS 180 AS 160 Aggregate Dei New GDP 140 120 100 80 60 AD 40 20 16 32 48 64 80 96 112 128 144 160 Real GDP (billions of dollars) Now suppose the Federal Reserve wants to keep inflation from hurting the economy and maintain output at the full-employment level. Price Level

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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8. Which of the following explain why the Aggregate Demand curve is downward sloping? a) An increase in the price level decreases the purchasing power of money denominated wealth, which in turn causes a decline in on consumption spending. b) An increase in the price level decreases the purchasing power of money, which means that more money is needed to purchase goods. This causes buyers of investment and durable goods to require bigger loans to finance their purchases. This, in turn, causes an increase in the demand for loanable funds which leads to a higher interest rate. A higher interest rate will reduce the real purchases of investment and durable goods. c) An increase in the price level makes goods relatively more expensive to foreigners causing them to buy less which means that net exports will decline. d) All of the above. e) None of the above. 9. Which of the following explain why the Aggregate Supply curve is upward sloping?…
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Worksheet 5: Aggregate Supply and Aggregate Demand Name: Complete the questions below. Be sure to show your work. Upload this worksheet to Moodle. Consider the following Aggregate Supply and Aggregate Demand curves. 1. P Draw 10 8 6 4 2 69% 20 40 G93 AS/AD LRAS 60 80 SRAS AD 100 120 GDP 3. Does this graph represent a Recessionary Gap, an Inflationary Gap, or an economy that is operating at its potential output? Explain. the graph. Pregate Demand?
Match each definition to the appropriate component of aggregate demand. Definition The sum of the expenditures of business firms on new plant, equipment, and software and of households on new homes The goods and services purchased by all levels of government The total amount spent by consumers on newly produced goods and services The difference between exports and imports ⒸNet exports O Government spending Consumer Expenditure Which of the following components represents the largest piece of aggregate demand? O Consumer expenditure O Investment spending O Which of the following components represents the smallest piece of aggregate demand? O Consumer expenditure O Government spending O Investment spending ONet exports Investment Spending Government Spending Net Exports O O O O
4 Exhibit 11-2 Aggregate demand and supply model 110 Price level 105 (CPI) 100 95 E NE Full employment. AS AD₁ AD 5.0 5.1 Real GDP (trillions of dollars per year) Suppose the economy in Exhibit 11-2 is in equilibrium at point E, and the marginal propensity to consume (MPC) is 0.9. Following Keynesian economics, the federal government can move the economy to full employment at point E₂ by increasing government spending by $_____ billion.
Worksheet 5: Aggregate Supply and Aggregate Demand Complete the questions below. Be sure to show your work. Upload this worksheet to Moodle. Consider the following Aggregate Supply and Aggregate Demand curves. 2. 3. D P 10 8 6 4 2 20 AS/AD 40 LRAS 60 80 140 SRAS AD Name: 100 120 GDP 4. Suppose the government increased spending (G). What would happen to Aggregate Demand? Draw the resulting curve, and mark a new equilibrium on the graph.
4. Suppose that over a five-year period, nominal GDP increases by 5 percent while real GDP decreases by 5 percent. a. What has happened to the level of output of this economy during this five-year period? Explain your reasoning briefly. b. What has happened to the level of prices during this five-year period? Explain your reasoning briefly. c. Use an aggregate demand-aggregate supply graph to show shift(s) of curves that would lead to this result.
5. Suppose that people’s preference for consumption fell. How would this change the aggregate demand: Increase, Decrease or No change at any given price: Decrease or Increase? How would this shift the AD curve: Leftward, Rightward, or No shift? Change in AD: Shift of AD:
7. The long-run aggregate supply curve and short-run adjustments Suppose an economy's short-run aggregate supply curve (SRAS), current equilibrium aggregate price level (P₁), and real GDP (Q1) are shown on the graph that follows. The economy currently has Natural Real GDP (QN) of $6 trillion. Use this information to place the orange long-run aggregate supply curve (LRAS, square symbols) in the correct position on the graph. 20 PRICE LEVEL 0 2 4 6 Q₁ REAL GDP (Trillions of dollars) 8 SRAS 10 LRAS
5. In an economy, the MPC is 0.5. The graph on the right depicts the economy's aggregate demand curve. Suppose the economy starts out at Point A on the aggregate demand curve. Draw the AE curve for this case. a. b. C. d. Suppose an increase in the price level causes the economy to move to Point B on the aggregate demand curve. Draw the new AE curve. Suppose government spending decreases by $0.2T. Draw the new AD curve. In place of the change in part (c), suppose net taxes decrease by $0.2T. Draw the new AD curve. Price Level (P) 170 160 150 140 130 120 110 100 90 80 70 60 AD 2.6 3.0 3.4 3.8 4.2 4.6 2.8 3.2 3.6 4.0 4.4 4.8 Y (T of $)
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Question 1. Explain why the Aggregate Demand curve is downward sloping . 2. Explain why the Aggregate Supply curve is upward sloping . 3. What determines potential output Yf, and how can the economy exceed Yf in the short run? 4. Explain the Equilibrium condition of Aggregate Expenditure= output Y. How are inventory changes related to AE and Y? 5. Define the multiplier and the marginal propensities to consume (MPC) and save (MPS). What is the relationship between the MPC and the multiplier? 6. Compare and contrast the short run Keynesian and long run Neoclassical views of the aggregate supply and Phillips curves 7. For each the following economies, calculate equilibrium Y*, the multiplier, and the size of the recessionary or inflationary gap, if any. a. AE= 250 +.75 Y Yf= 1200 b. AE= 400+ .9 Y Yf= 3000 c. AE= 300 +. 8Y Yf=1500 d. AE= 300+ .67 Y Yf=1000