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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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.
Q1: Illustrate each of the following situations with a graph showing AS and AD curves, and explain whathappens to the equilibrium values of the price level and aggregate output:a: A decrease in G with the money supply held constant by the Fed.b: a decrease in the price of oil with the money supply held constant by the Fed.
Consider a closed economy, where wages are sticky in the short run. The consumption function is C = co+c₁(Y-T), where the marginal propensity to consume c₁ is equal to 0.8. Initially the economy is in equilibrium at Y = Y* and P = Pº, where Pe is the price level that was expected when agents agreed their fixed nominal wage contracts. The short-run aggregate supply curve (SRAS) is horizontal. Suddenly the government increases government spending G by $200. For the following questions, if you think a variable goes up by (say) $50, just enter 50 as your answer. If you think a variable goes down by $50, enter -50 as your answer. If you think a variable doesn't change at all, enter 0 as your answer. 10. By how much will output Y change in the short run? 11. By how much will consumption C change in the short run? 12. By how much will investment I change in the short run? 13. By how much will output Y change (compared to its initial level before the change in G) in the long run, after wage…
Complete the following table to compare the results of an unanticipated expansionary policy to those of an anticipated expansionary policy in the short run and long run. Determine whether, in the short run, the level of output increases, decreases, or remains unchanged relative to the potential output level when the expansionary policy is anticipated versus unanticipated. Additionally, determine whether, in the long run, the actual price level is above, below, or the same as initial expectations under both scenarios, and, again, determine whether the level of output increases, decreases, or remains unchanged. Anticipated Expansionary Policy Unanticipated Expansionary Policy Short-Run Change in Output Decrease/Increase* Decrease/Increase/No Change* Long-Run Change in Price Level Same as Initial expectation/Higher then initial expectations/ lower then initial expectations* (same options as box on the left) ** Long-Run Change in Output Decrease/Increase/No change*…
Refer to the information provided in Figure below to answer the question that follow. AS Price level, P| AD AD, AD AD, AD, AD Aggregate output (income), Y Refer to Figure Firms respond to a decrease in net taxes by mostly raising their prices when the aggregate demand curve shifts from Select one: a. AD6 to AD1. b. AD1 to AD2. C. AD5 to AD6. d. AD3 to AD4.
Suppose an economy is in long-run equilibrium. The central bank reduces the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. Price Level LRAS Aggregate Supply Aggregate Demand Quantity of Output Now adjust the graph to show the new long-run equilibrium. Aggregate Demand € Aggregate Supply What causes the economy to move from its short-run equilibrium to its long-run equilibrium? The government increases spending to increase aggregate demand. Nominal wages, prices, and perceptions adjust downward to this new price level. O The government increases taxes to curb aggregate demand. O Nominal wages, prices, and perceptions adjust upward to this new price level.
The sticky-price theory of the short-run aggregate supply curve says that when the price level is higher than expected, some firms will have a- lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied. b- higher than desired prices, which leads to a decrease in the aggregate quantity of goods and service supplied. c- higher than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied. d- lower than desired prices, which leads to a decrease in the aggregate quantity of goods and services supplied
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.
Identify the most significant sources of disruption over the past several years and propose policies to address them. Consider the following factors in your response: How will your policy recommendations impact Aggregate Demand and Supply? Discuss the potential trade-offs associated with different program options. Evaluate the effects of the proposed policies on future economic growth possibilities, including their impact on the Production Possibility Frontier (PPF) and long-run aggregate supply. Analyze the potential effects of the policies on debt and budget deficits. Assess the impact of the policies on private investment and discuss whether crowding out is a concern in the short run versus the long run. Examine how your proposals may affect income distribution, consumer confidence, and spending. Predict the potential effects of your policy recommendations on GDP growth, price levels, and employment.
The following table describes the aggregate demand curve, where real GDP is expressed as the percent deviation from potential GDP and inflation is expressed as a percentage: Real GDP 2.0 1.0 0.0 -1.0 -2.0 Inflation 19 3.0 4.0 5.0 7.0 9.0 Due to a price shock, inflation increases by 2%. In the long run, what will real GDP be (expressed as the percent deviation from potential GDP)?
For each of the following events ,explain the short-run and long-run effects on output and the price level , assuming policymakers take no action. aThe stock market declines sharply, reducing consumers’ wealth bA technological improvement raises productivity cThe federal government increases spending on national defense dA recession overseas causes foreigners to buy fewer U.S. goods
Consider the figure to the right. What change in the position of the aggregate demand curve could generate deflation that is, a decrease in the equilibrium price level? What type of variation in the quantity of money placed into circulation by the Bank of Canada could generate such a change in the position of the aggregate demand (AD) curve? A fall in the equilibrium price level could be caused by Canada could generate such a change in the position of the aggregate demand (AD) curve by the quantity of money placed into circulation. in aggregate demand. The Bank of 1.) Using the line drawing tool, draw a new AD curve that shows the effects of decreasing the quantity of money in circulation. Label your line "AD2." 2.) Using the point drawing tool, indicate the economy's new long-run equilibrium price and level of real GDP. Label this point "E₂. Carefully follow the instructions above, and draw only the required objects. Price Level LRAS₁ E₁ Real GDP per Year ($ trillions) AD₁