A. Derive the DAD and DAS equations. Hint: For DAS, express , as a function of (Yt - Yt); for DAD, express Y, as a function of ( - ). B. Suppose the economy experiences an inflation scare: in period t, people believe that inflation in t+1 will be higher so nt> 0 (but for this period only). What happens to DAD and DAS in t? Explain what happens to output, inflation, nominal interest rate, and real interest rate. Show a graph and provide labels for equilibrium points (A, B, C, etc.) as needed.

A. Derive the DAD and DAS equations. Hint: For DAS, express , as a function of (Yt - Yt); for DAD, express Y, as a function of ( - ). B. Suppose the economy experiences an inflation scare: in period t, people believe that inflation in t+1 will be higher so nt> 0 (but for this period only). What happens to DAD and DAS in t? Explain what happens to output, inflation, nominal interest rate, and real interest rate. Show a graph and provide labels for equilibrium points (A, B, C, etc.) as needed.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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We have discussed two models that describe the relationship between inflation and economicgrowth. Which of the following is a property of the New Keynesian Model but NOT the RealBusiness Cycle (RBC) Model?a.Monetary policy has no effect on long run economic growth b.Recessions can be caused by a fall in aggregate demand. c.Prices are fully flexible in both the short and long run. d.All the above are properties of the RBC model. e.None of the above are properties of the New Keynesian model.
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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.
https://aplia.apps.ng.cengage.com/af/servlet/quiz?ctx=bkhana-0031&quiz_action=takeQuiz&quiz_probGuid=... A to Most economists believe that real economic variables and nominal economic variables behave independently of each other in the long run. For example, an increase in the money supply, a variable, will cause the price level, a variable, to increase but will have variable. The notion that an increase in the no long-run effect on the quantity of goods and services the economy can produce, a quantity of money will impact the price level but not the output level is known as In the short run, however, most economists believe that real and nominal variables are intertwined. Economists use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incomplete short-run aggregate demand (AD) and aggregate supply (AS) diagram-it needs appropriate labels for the axes and curves. You will…
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Suppose that the economy is depicted in the graph to the right. Using the line drawing tool, show demand-pull inflation by correctly shifting aggregate demand. Label the new line 'AD, Carefully follow the instructions above, and only draw the required objects. stion 5.1 here to search
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