Q3: Consider a baseline long run equilibrium where output is 22 trillion dollars, and the price level is 100. Note: In the Long Run Steady State Equilibrium, Price expectation is the same as price level & unemployment is 5% or lower. None of these are guaranteed in the short run. Usually, short run equilibrium is called an underemployment equilibrium.• You should answer each step in the following answer 3 table. **Answer 3)**| Steps | Your Answers ||-------|--------------|| **Step 1)** What happens in the short run to equilibrium price level and aggregate quantity & why? (Think about which curve shifts in which direction and why & where is the new short run equilibrium?) | || **Step 2)** What happens to the initial equality between price level and price expectations because of COVID19? | || **Step 3)** What happens to price expectations in the long run? (The market adjustment phase) | || **Step 4)** What happens next in the market adjustment phase? (Think about which curve shifts in which direction and why & where is the new short run equilibrium?) | || **Step 5)** Now that your Keynesian Colleague has proposed a massive expansionary fiscal policy, do you think it will work as an in-built stabilizer (i.e., return the economy back to a long run: would it stop market adjustment)? Are there policies that you will propose as a Classical Macroeconomist that is distinct from your Keynesian Colleague's proposal? | |*Explanation of the content of the table:* This table is a part of an economic assignment answer sheet focusing on the effects of different economic conditions and policies, such as those caused by COVID-19, on the economy's equilibrium and price levels in both the short run and long run. It also seeks to compare and contrast Keynesian and Classical economic responses to expansionary fiscal policies.*Graphs and Diagrams:* There are no graphs or diagrams in the provided image. *Educator Note:*Ensure to encourage students to understand the underlying economic theories such as the impacts of supply and demand shifts, price level adjustments, and the effectiveness of fiscal policy. For each of the steps outlined in the table, provide comprehensive explanations and applicable real-world examples to aid in the better understanding of these complex economic phenomena.

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Answered: Consider a baseline long run…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Q3: Consider a baseline long run equilibrium where output is 22 trillion dollars, and the price level is 100. Note: In the Long Run Steady State Equilibrium, Price expectation is the same as price level & unemployment is 5% or lower. None of these are guaranteed in the short run. Usually, short run equilibrium is called an underemployment equilibrium.
• You should answer each step in the following answer 3 table.

**Answer 3)**

| Steps | Your Answers |
|-------|--------------|
| **Step 1)** What happens in the short run to equilibrium price level and aggregate quantity & why? (Think about which curve shifts in which direction and why & where is the new short run equilibrium?) | |
| **Step 2)** What happens to the initial equality between price level and price expectations because of COVID19? | |
| **Step 3)** What happens to price expectations in the long run? (The market adjustment phase) | |
| **Step 4)** What happens next in the market adjustment phase? (Think about which curve shifts in which direction and why & where is the new short run equilibrium?) | |
| **Step 5)** Now that your Keynesian Colleague has proposed a massive expansionary fiscal policy, do you think it will work as an in-built stabilizer (i.e., return the economy back to a long run: would it stop market adjustment)? Are there policies that you will propose as a Classical Macroeconomist that is distinct from your Keynesian Colleague's proposal? | |

*Explanation of the content of the table:*

This table is a part of an economic assignment answer sheet focusing on the effects of different economic conditions and policies, such as those caused by COVID-19, on the economy's equilibrium and price levels in both the short run and long run. It also seeks to compare and contrast Keynesian and Classical economic responses to expansionary fiscal policies.

*Graphs and Diagrams:*

There are no graphs or diagrams in the provided image.

*Educator Note:*

Ensure to encourage students to understand the underlying economic theories such as the impacts of supply and demand shifts, price level adjustments, and the effectiveness of fiscal policy. For each of the steps outlined in the table, provide comprehensive explanations and applicable real-world examples to aid in the better understanding of these complex economic phenomena.

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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