Question 7. Suppose there is an exogenous increase in the price of oil in an economy.a. Use the aggregate demand and supply model to illustrate and examine the impact ofthe oil-price increase on output, employment and the price level in both the short runand the long run.b. If the Bank of Canada cares about keeping output and employment at their natural-ratelevels, what is the policy response of the Bank of Canada? What is the impact of policyresponse on the price level? Use the aggregate demand and supply model to explain youranswer.Please illustrate the answers using figures with aggregate demand and supply curves. Pleasealso briefly explain the answers in words.

and the long run. b. If the Bank of Canada cares about keeping output and employment at th levels, what is the policy response of the Bank of Canada? What is the in response on the price level? Use the aggregate demand and supply mode answer. Please illustrate the answers using figures with aggregate demand and supply cu also briefly explain the answers in words.

and the long run. b. If the Bank of Canada cares about keeping output and employment at th levels, what is the policy response of the Bank of Canada? What is the in response on the price level? Use the aggregate demand and supply mode answer. Please illustrate the answers using figures with aggregate demand and supply cu also briefly explain the answers in words.

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 Federal Reserve expands the money supply by 5 percent.a. Use the theory of liquidity preference to illustrate in a graph theimpact of this policy on the interest rate.b. Use the model of aggregate demand and aggregate supply to illustratethe impact of this change in the interest rate on output and the pricelevel in the short run.c. When the economy makes the transition from its short-runequilibrium to its new long-run equilibrium, what will happen to theprice level?d. How will this change in the price level affect the demand for moneyand the equilibrium interest rate?e. Is this analysis consistent with the proposition that money has realeffects in the short run but is neutral in the long run?
Mm.39. Subject:- Economy
Use the model of aggregate demand and aggregate supply to illustrate the impact of this change in the interest rate on output and the price level in the short run. Price Level K Aggregate Demand Quantity of Output The price level will fall. LRAS The demand for money will fall. Aggregate Supply The equilibrium interest rate will rise. Yes Which of the following will happen when the economy makes the transition from its short-run equilibrium to its long-run equilibrium? (Note: Do not adjust the graphs to reflect the transition to the long run.) Check all that apply. No Aggregate Demand Aggregate Supply LRAS (?) Is this analysis consistent with the proposition that the money supply has real effects in the short run but is neutral in the long run?
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Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. O The size of the labor force O The level of technological knowledge The price level The inflation rate Suppose the economy produces real GDP of $40 billion when unemployment is at its natural rate. Use the purple points (diamond symbol) to plot the economy's long-run aggregate supply (LRAS) curve on the graph. 132 128 LRAS 124 120 116 Q112 + PRICE LEVEL
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Suppose the Federal Reserve ("the Fed") shifts to a contractionary monetary policy by selling bonds through open-market operations. Assume that this policy is unanticipated. This problem will work through the short-run effects of this move. The following graph shows the money demand and money supply curves. Show the effect of the Fed's contractionary monetary policy by shifting one or both of the curves, and ignore any potential feedback effects. As a result of the Fed's policy, the interest rate to INTEREST RATE (Percent) 15 24 0 0 300 600 Money Supply 900 Money Demand 1200 1500 1800 QUANTITY OF MONEY (Billions of dollars) Money Demand -0- Money Supply The following graph shows the demand for investment. Show the short-run effect of the Fed's contractionary monetary policy by shifting the curve or moving the point along the curve. Again, ignore any potential feedback effects. Be sure the new interest rate corresponds to the interest rate you have on the top graph. INTEREST RATE…
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In the medium run, if government purchases are increased and nominal money supply is decreased, we can expect that a. the interest rate will increase while aggregate demand and prices may increase, decrease, or remain the same b. aggregate demand and prices will increase but interest rates will not change c. aggregate demand and interest rates will decrease but prices will increase d. aggregate demand, prices, and the interest rate will all decrease e. the AD-curve will shift to the right and the AS-curve will shift to the left
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