Directions: You are advised to spend the first 10 minutes reading all of the questions and planning your answers. You will then have 50 minutes to answer all three of the following questions. You may begin writing your responses before the reading period is over. It is suggested that you spend approximately half your time on the first question and divide the remaining time equally between the next two questions. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. Assume a country’s economy is currently in recession. Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following. Current real output, labeled Y1, and current price level, labeled PL1 Full employment output, labeled Yf Identify one action the central bank can take to help the economy recover from the recession. Draw a correctly labeled graph of the money market, and show the impact of the central bank’s action identified in part (b) on the nominal interest rate. On your graph for part (a), show the effect of the central bank’s action identified in part (b) on real output and the price level.
Directions: You are advised to spend the first 10 minutes reading all of the questions and planning your answers. You will then have 50 minutes to answer all three of the following questions. You may begin writing your responses before the reading period is over. It is suggested that you spend approximately half your time on the first question and divide the remaining time equally between the next two questions.
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and
Assume a country’s economy is currently in recession.
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Draw a correctly labeled graph of the long-run
aggregate supply , short-run aggregate supply, and aggregate demand curves, and show each of the following.-
Current real output, labeled Y1, and current
price level, labeled PL1 -
Full employment output, labeled Yf
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Identify one action the central bank can take to help the economy recover from the recession.
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Draw a correctly labeled graph of the
money market , and show the impact of the central bank’s action identified in part (b) on the nominal interest rate. -
On your graph for part (a), show the effect of the central bank’s action identified in part (b) on real output and the price level.
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Assume there is an increase in business confidence as a result of the central bank’s action.
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What will happen to the demand for capital goods?
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Draw a correctly labeled graph of the loanable funds market, and show the effect of the change identified in part (e)(i) on the real interest rate.
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Given your answer to part (e), what is the effect on potential real output in the long run? Explain.
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