B.) Begin by analyzing the general equilibrium model, including short-run shifts in the IS, LM, FE, AD, and AS curves. Then, answer these questions: 1. Is the short-run output level at the IS-LM intersection above or below the new full employment level of output? 2. In the event that markets function properly, what price change would be necessary to move the economy to the new full employment level of output? 3. What monetary policy would the Federal Reserve implement to move the economy back to the full employment level of output? C). Currently, the economy has low unemployment, and the Federal Reserve is fighting inflation aggressively. However, there is concern that the economy may enter a recession by the end of 2023. Your model in B) suggests the economy is above full employment with high pressure for price increases. In a recession, the economy would produce below its full employment level of output. 1. Explain how the Federal Reserve's policies can move the economy from above to below its full employment level of output using the model. 2. Do you think the economy will go into recession in 2023? Look at the labor market to see if the unemployment rate indicates equilibrium and potential GDP. Also, discuss whether business investment and consumer spending have decreased and how this would affect the general equilibrium model over time. Lastly, discuss how quickly the economy is adjusting to the Federal Reserve's policy actions.
B.) Begin by analyzing the general equilibrium model, including short-run shifts in the IS, LM, FE, AD, and AS curves. Then, answer these questions: 1. Is the short-run output level at the IS-LM intersection above or below the new full employment level of output? 2. In the event that markets function properly, what price change would be necessary to move the economy to the new full employment level of output? 3. What monetary policy would the Federal Reserve implement to move the economy back to the full employment level of output? C). Currently, the economy has low unemployment, and the Federal Reserve is fighting inflation aggressively. However, there is concern that the economy may enter a recession by the end of 2023. Your model in B) suggests the economy is above full employment with high pressure for price increases. In a recession, the economy would produce below its full employment level of output. 1. Explain how the Federal Reserve's policies can move the economy from above to below its full employment level of output using the model. 2. Do you think the economy will go into recession in 2023? Look at the labor market to see if the unemployment rate indicates equilibrium and potential GDP. Also, discuss whether business investment and consumer spending have decreased and how this would affect the general equilibrium model over time. Lastly, discuss how quickly the economy is adjusting to the Federal Reserve's policy actions.
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter8: Aggregate Demand And Aggregate Supply
Section: Chapter Questions
Problem 4WNG
Related questions
Question
in the answers, show the shifts curve graphs as well
Transcribed Image Text:B.) Begin by analyzing the general equilibrium model, including short-run shifts in the IS, LM,
FE, AD, and AS curves. Then, answer these questions:
1. Is the short-run output level at the IS-LM intersection above or below the new full
employment level of output?
2. In the event that markets function properly, what price change would be necessary to move the
economy to the new full employment level of output?
3. What monetary policy would the Federal Reserve implement to move the economy back to the
full employment level of output?
C). Currently, the economy has low unemployment, and the Federal Reserve is fighting inflation
aggressively. However, there is concern that the economy may enter a recession by the end of
2023. Your model in B) suggests the economy is above full employment with high pressure for
price increases. In a recession, the economy would produce below its full employment level of
output.
1. Explain how the Federal Reserve's policies can move the economy from above to below its
full employment level of output using the model.
2. Do you think the economy will go into recession in 2023? Look at the labor market to see if
the unemployment rate indicates equilibrium and potential GDP. Also, discuss whether business
investment and consumer spending have decreased and how this would affect the general
equilibrium model over time. Lastly, discuss how quickly the economy is adjusting to the Federal
Reserve's policy actions.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 4 images
Recommended textbooks for you
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:
9781337617383
Author:
Roger A. Arnold
Publisher:
Cengage Learning