For Shock G: Suppose the economy starts in the long run equilibrium. Illustrate changes that the shock will cause in the short run (using AD-SRAS). Explain why each curve shifts. Determine how the price level and output will be affected in the short run. Mark the output gap on the diagram. Is the output gap positive or negative? Is the economy is booming, or is it in a recession? On the same diagram illustrate how the economy will adjust to the shock in the long run and explain the mechanism. Determine how the price level and output will be affected in the long run. G. The government increases its spending on national defense As a result of this shock, in the short run the (SRAS Curve/AD Curve) will shift?In consequence, in the short run prices and output will?In the short run, there will be a ? (negative/postive) output gap,which means there will be a ? (boom/recession)As time passes, because of high unemployment the wages in the economy will? (decrease/increase)As a result, the SRAS curve will shift ? (right/left), causing the price level to ? (increase/fall) and output to eventually return to its long run level Y*.

Answered: For Shock G: Suppose the economy…

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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Question

For Shock G:

Suppose the economy starts in the long run equilibrium. Illustrate changes that the shock will cause in the short run (using AD-SRAS). Explain why each curve shifts.
Determine how the price level and output will be affected in the short run.
Mark the output gap on the diagram. Is the output gap positive or negative? Is the economy is booming, or is it in a recession?
On the same diagram illustrate how the economy will adjust to the shock in the long run and explain the mechanism.
Determine how the price level and output will be affected in the long run.

G. The government increases its spending on national defense

As a result of this shock, in the short run the (SRAS Curve/AD Curve) will shift?

In consequence, in the short run prices and output will?

In the short run, there will be a ? (negative/postive) output gap,which means there will be a ? (boom/recession)

As time passes, because of high unemployment the wages in the economy will? (decrease/increase)

As a result, the SRAS curve will shift ? (right/left), causing the price level to ? (increase/fall) and output to eventually return to its long run level Y*.

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