According to the aggregate demand and aggregate supply model, in the longrun a decrease in the money supply leads toA) decreases in both the price level and real GDP.B) an increase in real GDP and an increase in the price level.C) a decrease in the price level but does not change real GDP.D) an increase in the price level but does not change real GDP.

The objective of the question is to understand the long-term effects of a decrease in the money…

Answered: According to the aggregate demand and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Describe the potential impact of increasing interest rates on the components of aggregate demand. Explain the potential impact, if any, on aggregate supply. Examine the impact on real GDP and the average price level of an increase in the interest rates.
How will an increase in aggregate demand most likely affect the economy in the long run? Because output is above full-employment level of output, unemployment is below the natural rate of unemployment. The nominal wage will be pushed upward thus increasing the cost of production and aggregate supply decreases. Real GDP returns to full employment and the price level decrease. Because output is below full-employment level of output, unemployment is above the natural rate of unemployment. The nominal wage will be pushed downwards thus reducing the cost of production and aggregate supply increases. Real GDP returns to full employment and the price level increase. Because output is above full-employment level of output, unemployment is below the natural rate of unemployment. The nominal wage will be pushed upward thus increasing the cost of production and aggregate supply decreases. Real GDP returns to full employment and the price level increases Because output is above full-employment…
According to the aggregate demand and aggregate supply model, in the long run a decrease in the money supply leads to A) decreases in both the price level and real GDP. B) an increase in real GDP and an increase in the price level. C) a decrease in the price level but does not change real GDP. D) an increase in the price level but does not change real GDP.
Which of the following would shift aggregate demand to the right? 1) The value of the dollar increases. 2) There is a decline in consumer confidence. 3) Stock market values increase by 20%. 4) College graduates are having a difficult time finding jobs. 5) A fall in the price level increases the value of real wealth.
Suppose the economy is in a situation of moderate unemployment, and then an exogenous increase of aggregate demand occurs. (Assume the aggregate demand schedule follows the pattern set out by the mainstream story.) Use short run aggregate supply and aggregate demand analysis to discuss in detail the effects of this demand change on the price level and real GDP in the short run. Explain how the situation could change in the long run after the happenings in the first part.
Within the classical form of the quantity theory, the demand for money is given by Md = kPY. Suppose income (Y) is given at 400 units, and the money supply (M) is fixed at 200 units. Suppose k drops from its initial value of 0.5 to 0.25. What is the initial price level? What is the new price level after the change in k? Explain the process that leads to the change in the aggregate price level.
If the central bank sells government securities from the private sector-money markets other things being equal, what would the effect be on the following? a)Aggregate demand b) Aggregate supply c)economic activity d)Inflation e)Unemployment
To affect the level of potential output, the monetary policy and fiscal policy must Question 1 options: alter short-run aggregate supply. alter short run aggregate demand. affect investment that accelerates capital accumulation. none of the above.
Use the graph to answer the question that follows. Real GDP Potential real GDP T5 Time The government of Country 'X' is operating at point 'C' in T3. Which of the following events would move the economy from point 'C' to 'D'? Sharp rise in unemployment rate Increase in money supply Decrease in interest rates Rise in aggregate demand Decrease in import Actual real GDP
Blank 1 answer choices: no change, an increase, a decrease Blank 2 answer choices: no change in level output, more output, less output
Assume that a country’s economy is in a short-run equilibrium and the actual unemployment rate is lower than the natural rate of unemployment. Using a correctly labeled graph of the long-run aggregate supply curve, short-run aggregate supply curve, and aggregate demand curve, show each of the following. Current price level, labeled PL1, and current output level, labeled Y1 The full employment output level, labeled YF Draw a correctly labeled graph of the country’s reserve market, and show how the central bank’s action to move the economy toward its long-run equilibrium affects the policy rate in the short run.
Suppose velocity rises and the money supply falls. How will things change in the AD–AS framework if a change in the money supply is completely offset by a change in velocity? Check all that apply. The increase in velocity could shift the AD curve to the left by the same amount as the fall in the money supply shifts the AD curve to the right. Changes in the money supply would have no effect on Real GDP, the short-run price level, nor the long-run price level. A change in the money supply would decrease Real GDP, the short-run price level, and the long-run price level. The increase in velocity could shift the AD curve to the right by the same amount as the fall in the money supply shifts the AD curve to the left.

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