Assume that the IS-MP model on the right shows an economy that was in long-run macroeconomic equilibrium. Then, there was a significant positive demand shock 1.) Using the 3-point curved line drawing tool, show the effect of the positive demand shock. Properly label your curve 2) Using the line drawing tool, show how the Fed might respond to restore long-run equilibrium Properly label your curve Carefully follow the instructions above, and only draw the required objects Real interest rate Y-YP 10 MP₁ IS, Output gap

Assume that the IS-MP model on the right shows an economy that was in long-run macroeconomic equilibrium. Then, there was a significant positive demand shock 1.) Using the 3-point curved line drawing tool, show the effect of the positive demand shock. Properly label your curve 2) Using the line drawing tool, show how the Fed might respond to restore long-run equilibrium Properly label your curve Carefully follow the instructions above, and only draw the required objects Real interest rate Y-YP 10 MP₁ IS, Output gap

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Problem 1 Consider the IS-LM and AD-AS set up as shown below: LRAS LM(M,/P;) IS P LRAS SRAS, P AD, Y a. Suppose Fed increases M. Show the short-run effects on your graphs. b. Show what happens in the transition from the short run to the long run. c. How do the new long-run equilibrium values of the endogenous variables compare to their initial values?
Dynamic aggregate demand (AD) can be derived using the quantity theory of money. Label the equation so that it accurately expresses the quantity theory of money in dynamic form growth in the money supply -+ Answer Bank unemployment growth in velocity inflation real economic growth marginal propensity to save Suppose that the velocity of money is stable, 4% real economic growth is occurring, the rate of inflation is 4%, unemployment is 5.3%, and the marginal propensity to save is 3%. By how much is the money supply growing? Enter your answer as a percentage.
Suppose inflation is still high be mid-2022 and the Fed chair announces his/her policy. Suppose his or her approach to monetary policy can be summarized by the following statement: “I care only about inflation. Unemployment is at very low levels for quite some time” b) What would be the effect on the aggregate demand curve?
1. In macroeconomic, How expectations can play a role in shaping both consumption behavior and investment behavior.
9. Which of the following will result in expansionary monetary or fiscal policy being the LEAST effective in increasing real GDP? A. The LRAS curve has a negative slope B. Aggregate demand is less elastic than aggregate supply C. Wages and prices are very flexible and change quickly in reaction to policy changes D. The SRAS curve is perfectly elastic
Question 5A Starting from a baseline Long Run Steady State Equilibrium (LRSSE), the federal reserve increases interest rates. i. What kind of policy is this (Monetary or fiscal; ii. iii. expansionary or contractionary? How do you know? As a response which curve will start shifting in which direction? Why? How will this policy make the economy move away from the baseline Long Run Steady State Equilibrium (how would it change unemployment or price level relative to the long run steady state equilibrium )? iv. Draw a graph to show the changes to the long run steady state equilibrium (LRSSE).
Assume our complete 4-panel model of the economy in equilibrium at Y-full employment. If the Fed buys up government securities from the public, macroeconomists predict which one of the following? Group of answer choices a)In the long run there will be some inflation and aggregate output will eventually return to its full employment level. b)The short run aggregate demand curve shifts to the left and the short run aggregate supply curve shifts to the right. c)In the long run there will be some inflation and aggregate output will be permanently pushed above Y-full employment. d)The short run aggregate demand curve shifts to the right and the short run aggregate supply curve shifts to the right.
Consider the figure to the right. If the Bank of Canada decreases the quantity of money in circulation sufficiently to generate a leftward shift in the aggregate demand curve by $0.5 trillion, will actual equilibrium real GDP rise by this amount in the classical model? Explain. 1.) Using the line drawing tool, draw a new AD curve that shows the effects of decreasing the quantity of money in circulation by $0.5 trillion. Label your line 'AD ₂.' 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 only draw the required objects. In the classical model, actual equilibrium real GDP from E₁ to E₂. In other words, with fall by this amount because prices and the economy moves O A. Say's law and flexible interest rates, prices and wages would always lead to full employment at a level of real GDP of $4 trillion. OB. Say's law and inflexible interest rates, prices and…
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
. On 24 February 2022, Russian forces launch full-scale invasion of Ukraine.This has lead affectedbusiness confidence in the US. Show the effect on the following models given the Fed’s response (a) IS-LM & Fed fights inflation (b) AD-AS & Fed takes actions to support jobs
Question 1 Discuss, by means of appropriate diagrams and explanation, the Keynesian liquidity trap. Depict both the LM curve and aggregate demand (AD) curve, and explain their appearance, in the case of the liquidity trap. If you were to advise the policymakers on which action to take, what would be your advice?
Please be sure to explain why and how to the questions -Thank you