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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

/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

ENGR.ECONOMIC 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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/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?
Transcribed Image Text: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
Transcribed Image Text: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
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