a) In the context of the IS-LM model, first draw a graph with the IS and LM curves when the economy is in a liquidity trap and output is well below its full-employment level. b) Then, draw the corresponding AD-AS graph and explain why the AD curve has a vertical portion in this case. c) Finally, use your graphs to describe how each of the following developments affects the two curves in both graphs. Government spending increases. The central bank implements conventional expansionary monetary policy Expected inflation rises. In which of these cases, if any, does equilibrium output move closer to its full- employment level?

a) In the context of the IS-LM model, first draw a graph with the IS and LM curves when the economy is in a liquidity trap and output is well below its full-employment level. b) Then, draw the corresponding AD-AS graph and explain why the AD curve has a vertical portion in this case. c) Finally, use your graphs to describe how each of the following developments affects the two curves in both graphs. Government spending increases. The central bank implements conventional expansionary monetary policy Expected inflation rises. In which of these cases, if any, does equilibrium output move closer to its full- employment 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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the following holds in an economy: YP = $20 Trillion, YActual = $20 Trillion, MPČ = 0.6, SRAS is perfectly elastic. a) Use an AD-AS diagram to depict the economic scenario described. b) Suppose there is a $0.2 Trillion increase in autonomous consumption spending. Further suppose there are no taxes. What would be the ultimate effect on YActual? Draw a new diagram to depict this shock and resulting short-run macroeconomic equilibrium. c) Again suppose there is a $0.2 Trillion increase in autonomous consumption spending (starting from the baseline case you depicted in part a). Further suppose there are taxes and the tax rate is 30%. What would be the ultimate effect on YActual? Draw a new %3D diagram to depict this shock and resulting short-run macroeconomic equilibrium. d) Use answers to parts b) and c) to comment on how taxes act as automatic stabilizers in an economy.
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In the Macro Model, an increase in the amount of Capital in an economy due to Investment spending Group of answer choices Shifts only the Aggregate Demand Curve Shifts only the Aggregate Supply Curve Shifts only the slope of the Aggregate Supply Curve Shifts both the Aggregate Demand Curve and Aggregate Supply Curve
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Please draw a graph including everything below: Draw a fully labeled AS-AD model (include the AD, SRAS, and LRAS curves) to illustrate a recessionary gap. Label the Price Level (PL1) and GDP (Y1). Then draw a new AD or SRAS curve to illustrate the intended impact the stimulus bills. Label the new Price Level (PL1) and GDP (Y2).
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let's consider the AS/AD model. furthermore, assume two events happen at the same time: government conducts contractionary fiscal policy and the global price of energy (oil) falls. show the effects of these two events in a graph and explain what will happen to the GDP and price level?
Please note that this is a multi part quesition; thank you so much for your time and effort it means so much to me! Figure 1: Hayek’s (Classical) AD-AS Model (Image normally goes here) Part 1: Why does Hayek’s aggregate supply curve always lead to an equilibrium level of national output equal to the full-employment level of real GDP? Part2: Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayek’s idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce? Part 3: Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not?