Assume that an economy is initially operating at the natural rate of output(full employment output). Use the AD-AS model to illustrate graphically the effect on price and output of an increase in government spending and a decrease in the cash rate . Explain your assumptions with respect to the range of aggregate supply of your analysis.

Assume that an economy is initially operating at the natural rate of output(full employment output). Use the AD-AS model to illustrate graphically the effect on price and output of an increase in government spending and a decrease in the cash rate . Explain your assumptions with respect to the range of aggregate supply of your analysis.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume that an economy is initially operating at the natural rate of output (full employmentoutput). Use the AD-AS model to illustrate graphically the effects on price and output of areduction in government spending. Explain your assumptions with respect to the range ofaggregate supply of your analysis.
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
When in macroeconomics an economy ‘overheats’ it is observed that aggregate demand exceeds national income at the full employment output level. Within a ‘Keynesian cross’ framework this overheating is described as which of the following: (a) A Goldilocks effect; (b) A hyperinflation; (c) A recessionary gap; (d) An inflationary gap Please illustrate the correct answer via a diagram.
Which of the following would be most likely to produce a leftward shift of the aggregate demand (AD) curve? a) an increase in exports b) an increase in energy costs c) a decrease in imports d) a decrease in government expenditure
The figure below is a part of the AD-AS model as a description of the current situation of an economy. PA=$10 P YA=4000 Y a) Find the short-run equilibrium (i.e. the real output and the price level thereof) of this economy. b) If the natural level of output is 3500, which one will be higher, the unemployment rate at point A, or the natural unemployment rate? Explain. c) Give two reasons as to why the short-run aggregate supply is upward sloping. d) Suppose the government takes no action about the situation indicated above. Explain, with the help of a figure properly labeled, what will happen in this economy in the long run. e) Describe the two kinds of macroeconomic policies that can be used in the situation described before part c). Indicate clearly in your description whether each policy is to the aggregate demand or aggregate supply or Further, give reason(s) as to why the government may want to use these policies rather than doing nothing.
Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not?
Note: The hand written solution is not allowed.
Assume the economy operates in the intermediate range of aggregate supply curve. Using the AS/AD model, discus the impact of the following events on the price level and real GDP, and provide relevant figures. a) The recent oil production cut by OPEC and its allies, including Russia, disrupted the global oil market. b) An expansionary monetary policy on which the interest rate is lowered.
Need help with this. THanks!
Use the graph below to answer questions #4-5. This graph depicts the AD-AS model, which involves the Aggregate Demand curve (AD), Aggregate Supply curve (AS) and Long Run Aggregate Supply curve (LRAS). Our assumptions with this model match those from class. LRAS AS AD Assume in the multiple choice questions below that our starting point is pt A. Assume that in the months leading up to a major election, the Federal government enacts legislation that significantly increases government spending. Assume further that government pays for this spending by increasing the money supply. Based on our discussion of the self-correcting mechanism, how would this policy affect the graph in the short run and long run? Itranscript Oa. in the short run, AD will increase, but over the long run, AS will eventually shift upward as workers begin to ask for cost of living increases from their employers Ob. in the short run, AD will increase, but over the long run. AS will eventually shift leftward as workers…
QUESTION 4 Consider the aggregate supply-aggregate demand (AD-AS) model that we saw in class. Assume that prices are fixed in the short run and are fully flexible in the long run. The initial full-employment level of output is y-900 and the initial price level is P= 100. The aggregate demand curve is given by y=1500 – 6P. %3D Scenario 2, long run: A major earthquake destroys a part of the economy's capital stock and reduces the full-employment level of output shifts to y = 880: In the long run, the output is and the price level is Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard may automatically delete it and you should not do anything about it. In case of percentages, do not type in the percentage symbol "%".
Two potential causes of inflation above target in the AD-AS model: Demand-pull inflation: This occurs when aggregate demand (AD) increases more than the long-run aggregate supply (LRAS). In the AD-AS diagram, this would be represented by a rightward shift of the AD curve. The result is a higher price level and real GDP beyond the long-run macroeconomic equilibrium level. Cost-push inflation: This occurs when the short-run aggregate supply (SRAS) curve shifts to the left due to increased production costs, such as rising wages or input prices. In the AD-AS diagram, this would be represented by a leftward shift of the SRAS curve. The result is a higher price level and a reduction in real GDP. how do i graph this information in an ad-as diagram