Again, the following graph shows the economy in long-run equilibrium at the expected inflation rate of 3% and the natural level of output of $600 pillion, before the decrease in consumption spending associated with the housing market contraction. During the transition from the short run to the long run, price-level expectations will curve will shift to the Now show the long-run impact of the housing market slump by shifting both the aggregate demand (AD) curve and the short-run aggregate supply AS) curve to the appropriate positions. INFLATION RATE (%) 5 3 2 1 0 0 200 600 800 400 OUTPUT (Billions of dollars) AS AD 1000 1200 In the long run, as a result of the housing market slump, the inflation rate natural level of output, and the unemployment rate AD AS ? and the the quantity of output the natural rate of unemployment. the

Again, the following graph shows the economy in long-run equilibrium at the expected inflation rate of 3% and the natural level of output of $600 pillion, before the decrease in consumption spending associated with the housing market contraction. During the transition from the short run to the long run, price-level expectations will curve will shift to the Now show the long-run impact of the housing market slump by shifting both the aggregate demand (AD) curve and the short-run aggregate supply AS) curve to the appropriate positions. INFLATION RATE (%) 5 3 2 1 0 0 200 600 800 400 OUTPUT (Billions of dollars) AS AD 1000 1200 In the long run, as a result of the housing market slump, the inflation rate natural level of output, and the unemployment rate AD AS ? and the the quantity of output the natural rate of unemployment. the

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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.
Consider the AD-AS model below. The economy is in long-run equilibrium at point in period 1. Consider an increase in government spending. If the public has rational expectations, the economy will move to point If the public has adaptive expectations, the economy will move to point . In period 3 the AS will pass through point In the long run the AS will move to point
Which of the following would cause the dynamic DAD curve to shift in (back)? A) a decrease in consumer confidence. B) a decrease in the inflation rate. C) an increase in consumer wealth. D) an increase in the short-run aggregate supply (SRAS) curve.
From the list below, choose ONE answer that best describes what would occur INITIALLY in the following AD (aggregate demand) AS (aggregate supply)" situation(s). A large fall in interest rates stimulates capital spending 0 O U Shift to the right of the AS curve Move to the right (up) along the AS curve Shift to the right of the AD curve Shift to the left of the AS curve Move to the left (down) along the AS curve Move to the right (down) along the AD curve Shift to the left of the AD curve Move to the left (up) along the AD curve
please zoom in to see
If the economy begins at a short-run equilibrium below potential output, then there would be a- downward pressure on wages and prices and the short-run aggregate supply curve will eventually shift down/right b- downward pressure on wages and prices and the short-run aggregate supply curve will eventually shift up/left c- upward pressure on wages and prices and the short-run aggregate supply curve will eventually shift down/right d- upward pressure on wages and prices and the short-run aggregate supply curve will eventually shift up/left
question 2: In Figure 2, what are the factors that may cause the aggregate demand to shift from AD to AD1? What is the difference between demand pull inflation, cost push inflation, and recession?
In Figure 2 above, what are the factors that may cause the aggregate demand to shift from AD to AD1? What is the difference between demand-pull inflation, cost-push inflation and recession?
Start at full-employment (FE) equilibrium with flexible wages and worker misperception of price level changes in the short run. Suppose then that we have an increase in Aggregate Demand. First, think about the short-run effects on price level (P), output level (Q), wage level (W), employment (L), and unemployment (U)? In the long run, once workers realize that there was a change in the price level, they will change the supply curve of labor. When all subsequent wage and price adjustments take place, we will be in a new long-run equilibrium. From the original full-employment (FE) equilibrium to the final one, what is the net change in the price level (P), output level (Q), the nominal wage (W), employment (L), unemployment rate (U), and the real wage (W/P)? Group of answer choices a) An increase in P, no change in Q, no change in W, an increase in L, an increase in U and no change in W/P. b) An increase in P, a decrease in Q, a decrease in W, a decrease in L, an…
Suppose that the full employment level of nominal GDP rises in one year from $16.8 to $18.0 trillion. The long-run equilibrium price level, however, remains unchanged at 120. By how much (in real dollars) has the long-run aggregate supply curve shifted to the right from one year to the next? $ trillion. (Round your answer to two decimal places.)
Explain each of the following in terms of how changes in the price level and the effect on Aggregate Quantity Demanded: The Real Balances Effect (in your text this is referred to as the Wealth Effect) The Interest Rate effect The Foreign Purchases effect (in your text this is referred to as the Foreign Prices effect)
The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $300 billion. Suppose households suddenly begin to spend less and save more in order to increase saving for retirement. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the sharp increase in saving. PRICE LEVEL 240 200 160 120 8 40 0 0 100 200 300 400 OUTPUT (Billions of dollars) AS AD 500 600 AD AS A In the short run, the decrease in consumption spending associated with the increase in saving causes the price level to price level people expected and the quantity of output to the unemployment rate to the the natural level of output. The sharp increase in saving will cause the natural rate of unemployment in the short run.