/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.Starting from the baseline, suppose COVID 19 hits this economy. If this disease only makes workers sick (everything else remaining constant)this is a Continuing from Question 3, and Question 3 had been answered in Answer 3 table. You should answer in table Anwser4 with following steps Q3:StepsYour AnswersStep 1) What happens in the short run toequilibrium price level and aggregate quantity &why? (Think about which curve shifts in whichdirection and why & where is the new short runequilibrium?)<Covid 19 hits the economy. Hence the aggregatesupply curve has shifted to its left. Initially, theprice rises, as the economy is at a long-run steady-state equilibrium, there will be no change in outputsupply.Step 2) What happens to the initial equalitybetween price level and price expectations becauseof COVID19?the change in price will be short but there will be arecession in the economy.Step 3) What happens to price expectations in the the change in price will be short but there will be arecession in the economy.long run? (The market adjustment phase)<Step 4) What happens next in the marketadjustment phase? (Think about which curve shiftsin which direction and why & where is the newshort run equilibrium?)<If they were opting for expansionary fiscal ormonetary policy. Then the demand will beincreased and if new technology can be used upthen supply can be also raised.Step 5) Now that your Keynesian Colleague hasproposed a massive expansionary fiscal policy, doyou think it will work as an in-built stabilizer (i.e.,return the economy back to a long run: would itstop market adjustment?)? Are there policies thatyou will propose as a Classical MacroeconomistthatYes, if expansionary fiscal policies areimplemented in the economy as recommended by acolleague, the short-run equilibrium level willchange dramatically, and the economy willexperience an in-built stabilizer effect. Thetraditional hypothesis is more focused on long-runobjectives in which the market changes itself andthere is no need for government intervention.Despite the fact that it has been known in the pastthat the old-style hypothesis of trusting that themarket will address itself does not always work.is distinct from your Keynesian Colleague'sproposal? Answer 4)StepsStep 1) What will be the shape of thePhillips Curve (Upward / Downward/Vertical/Horizontal). I want you to thinkabout what variable is measured on thehorizontal axis of the Phillips CurveGraph and what variable is measured inthe Phillips Curve Vertical axis. Thentell us what it means to say that PhillipsCurve is upward or downward slopingor vertical or horizontalStep 2) Remember the policy yourKeynesian Colleague picked in Question3: why did this policy create adownward/upward/vertical/horizontalsloping Phillips Curve?Your Answers

Philips Curve The Philips curve is a graphical representation of a curve that depicts the…

Answered: /Consider a baseline long run…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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/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.
Starting from the baseline, suppose COVID 19 hits this economy. If this disease only makes workers sick (everything else remaining constant)

this is a Continuing from Question 3, and Question 3 had been answered in Answer 3 table.

You should answer in table Anwser4 with following steps

Q3:
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?)<
Covid 19 hits the economy. Hence the aggregate
supply curve has shifted to its left. Initially, the
price rises, as the economy is at a long-run steady-
state equilibrium, there will be no change in output
supply.
Step 2) What happens to the initial equality
between price level and price expectations because
of COVID19?
the change in price will be short but there will be a
recession in the economy.
Step 3) What happens to price expectations in the the change in price will be short but there will be a
recession in the economy.
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?)<
If they were opting for expansionary fiscal or
monetary policy. Then the demand will be
increased and if new technology can be used up
then supply can be also raised.
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
Yes, if expansionary fiscal policies are
implemented in the economy as recommended by a
colleague, the short-run equilibrium level will
change dramatically, and the economy will
experience an in-built stabilizer effect. The
traditional hypothesis is more focused on long-run
objectives in which the market changes itself and
there is no need for government intervention.
Despite the fact that it has been known in the past
that the old-style hypothesis of trusting that the
market will address itself does not always work.
is distinct from your Keynesian Colleague's
proposal?

Answer 4)
Steps
Step 1) What will be the shape of the
Phillips Curve (Upward / Downward/
Vertical/Horizontal). I want you to think
about what variable is measured on the
horizontal axis of the Phillips Curve
Graph and what variable is measured in
the Phillips Curve Vertical axis. Then
tell us what it means to say that Phillips
Curve is upward or downward sloping
or vertical or horizontal
Step 2) Remember the policy your
Keynesian Colleague picked in Question
3: why did this policy create a
downward/upward/vertical/horizontal
sloping Phillips Curve?
Your Answers

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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