Question 715.0%14.0%13.0%12.0%11.0%.10.0%9.0%8.0%7.0%6.0%5.0%4.0%3.0%2.0%1.0%0.0%Inflation Rate (n)down to0decreases to5.041,0002,00010.043,0004,0005,000Consider the graph above. It is also in the files folder under the name Short Run andthe Long Run. The graph pertains to a hypothetical country. The central bank in thiscountry (also called the Fed) follows an inflation targeting policy. The current targetinflation rate in 8 percent (I know, it is too high. We will deal with this problem laterafter appointing a new chairperson for the Fed). The natural rate of unemployment is5 percent and Okun's alpha is 8.7000.00LRASSuppose that consumer confidence in the economy declines and as a result ADdecreases by 3,000 units. This reduction in demand causes the inflation rate to slow7.00percent in the short run. In the short run, the real GDPpercent.ADReal GDP (Y)SRAS6,0007,0008,0009,00010,0003 11,00012,00013,00014,00015,00016.00017,00018,00019,00020,000units. Cyclical unemployment increases topercent resulting in an overall unemployment rate ofIf the Fed does not take any action and the recession turns out to be long-lived, theinflation rate will change over time and will equal 5.00percent in thelong run.

The decrease in the AD means that the demand in the economy declines and hence the decline in the…

Consider the graph above. It is also in the files folder under the name Short Run and the Long Run. The graph pertains to a hypothetical country. The central bank in this country (also called the Fed) follows an inflation targeting policy. The current target inflation rate in 8 percent (I know, it is too high. We will deal with this problem later after appointing a new chairperson for the Fed). The natural rate of unemployment is 5 percent and Okun's alpha is 8. Suppose that consumer confidence in the economy declines and as a result AD decreases by 3,000 units. This reduction in demand causes the inflation rate to slow down to 7.00 percent in the short run. In the short run, the real GDP decreases to 5.04 7000.00 units. Cyclical unemployment increases to percent resulting in an overall unemployment rate of

Consider the graph above. It is also in the files folder under the name Short Run and the Long Run. The graph pertains to a hypothetical country. The central bank in this country (also called the Fed) follows an inflation targeting policy. The current target inflation rate in 8 percent (I know, it is too high. We will deal with this problem later after appointing a new chairperson for the Fed). The natural rate of unemployment is 5 percent and Okun's alpha is 8. Suppose that consumer confidence in the economy declines and as a result AD decreases by 3,000 units. This reduction in demand causes the inflation rate to slow down to 7.00 percent in the short run. In the short run, the real GDP decreases to 5.04 7000.00 units. Cyclical unemployment increases to percent resulting in an overall unemployment rate of

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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