Economics 3040 Intermediate Macro HW4: An Adverse Demand Shock For all graphs label: both axis, all lines or curves, and all equilibrium values. Also be sure that the direction of shifts in lines and changes in equilibrium values are clear. Your graphs should be large enough to easily interpret. Turn in your graphs on paper at the beginning of the March 26th class meeting. (1) Sketch a graph of the goods market (AD-SRAS-LRAS) and a graph of the labor market with both markets initially in long run equilibrium. Label the initial values of real GDP, the price level, employment, and the nominal wage. Now show the effect of an adverse demand shock on both graphs and label the new values of all variables. (2) Sketch a graph of the goods market initially in a recession. Label potential real GDP, real GDP in the current recession, and the current price level. Also label the recessionary gap. Now show how an increase in government spending may end the recession. (3) Sketch a graph of the goods market initially in a recession. Label potential real GDP, real GDP in the current recession, and the current price level. Also label the recessionary gap. Now show suppose that expected prices adjust PART of the way back toward the actual price level. Demonstrate the effects of this adjustment in the expected price level on real GDP and the actual price level.
Economics 3040 Intermediate Macro HW4: An Adverse Demand Shock For all graphs label: both axis, all lines or curves, and all equilibrium values. Also be sure that the direction of shifts in lines and changes in equilibrium values are clear. Your graphs should be large enough to easily interpret. Turn in your graphs on paper at the beginning of the March 26th class meeting. (1) Sketch a graph of the goods market (AD-SRAS-LRAS) and a graph of the labor market with both markets initially in long run equilibrium. Label the initial values of real GDP, the price level, employment, and the nominal wage. Now show the effect of an adverse demand shock on both graphs and label the new values of all variables. (2) Sketch a graph of the goods market initially in a recession. Label potential real GDP, real GDP in the current recession, and the current price level. Also label the recessionary gap. Now show how an increase in government spending may end the recession. (3) Sketch a graph of the goods market initially in a recession. Label potential real GDP, real GDP in the current recession, and the current price level. Also label the recessionary gap. Now show suppose that expected prices adjust PART of the way back toward the actual price level. Demonstrate the effects of this adjustment in the expected price level on real GDP and the actual price level.
Chapter1: Making Economics Decisions
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Transcribed Image Text:Economics 3040
Intermediate Macro
HW4: An Adverse Demand Shock
For all graphs label: both axis, all lines or curves, and all equilibrium values.
Also be sure that the direction of shifts in lines and changes in equilibrium
values are clear. Your graphs should be large enough to easily interpret.
Turn in your graphs on paper at the beginning of the March 26th class
meeting.
(1) Sketch a graph of the goods market (AD-SRAS-LRAS) and a graph of the labor market
with both markets initially in long run equilibrium. Label the initial values of real GDP,
the price level, employment, and the nominal wage. Now show the effect of an adverse
demand shock on both graphs and label the new values of all variables.
(2) Sketch a graph of the goods market initially in a recession. Label potential real GDP,
real GDP in the current recession, and the current price level. Also label the recessionary
gap. Now show how an increase in government spending may end the recession.
(3) Sketch a graph of the goods market initially in a recession. Label potential real GDP,
real GDP in the current recession, and the current price level. Also label the recessionary
gap. Now show suppose that expected prices adjust PART of the way back toward the
actual price level. Demonstrate the effects of this adjustment in the expected price level on
real GDP and the actual price level.
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