c and d 14. Suppose the economy begins with an output equal to its natural level. Then there is anincrease in consumer confidence and households attempt to consume more for a given level ofdisposable income.a. Using the AS-AD and IS-LM models, show the effects of an increase in consumerconfidence on the position of the AD, AS, IS, and LM curves in the short run and themedium run. Precisely label all axes and curves to receive full credit. Label the short-runequilibrium and medium-run equilibrium with SR and MR, respectively.b. Explain the transition process from the short-run equilibrium to the medium-runequilibrium. In particular, discuss what makes the equilibrium changes over time.c. What happens to private saving in the short run? Can private saving increase in theshort run even when there is an increase in consumer confidence? If yes, discuss thenecessary condition for the higher private saving in the short run.d. What happens to private saving in the medium run compared to its short-run andoriginal levels? Explain carefully.

*Answer: *C In the short rum, private saving increase. It is possible that even with with higher…

income. Using the AS-AD and IS-LM models, show the effects of an increase in co nfidence on the position of the AD, AS, IS, and LM curves in the short run edium run. Precisely label all axes and curves to receive full credit. Label th uilibrium and medium-run equilibrium with SR and MR, respectively. Explain the transition process from the short-run equilibrium to the mediun uilibrium. In particular, discuss what makes the equilibrium changes over ti What happens to private saving in the short run? Can private saving increas ort run even when there is an increase in consumer confidence? If yes, disci cessary condition for the higher private saving in the short run.

income. Using the AS-AD and IS-LM models, show the effects of an increase in co nfidence on the position of the AD, AS, IS, and LM curves in the short run edium run. Precisely label all axes and curves to receive full credit. Label th uilibrium and medium-run equilibrium with SR and MR, respectively. Explain the transition process from the short-run equilibrium to the mediun uilibrium. In particular, discuss what makes the equilibrium changes over ti What happens to private saving in the short run? Can private saving increas ort run even when there is an increase in consumer confidence? If yes, disci cessary condition for the higher private saving in the short run.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter9: Demand-side Equilibrium: Unemployment Or Inflation?

Section9.A: The Simple Algebra Of Income Determination And The Multiplier

Problem 4TY

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