6 Business Fluctuations: End of Chapter ProblemLet's have some practice with the aggregate demand curve. If you want to draw it in your familiar y = b + mx format, you canthink of it this way:inflation (growth in money + growth in velocity)-real growtha. What is being held constant on a fixed aggregate demand curve?O spending growth (growth in M + growth in u)O real GDP growth (growth in Y)inflation (growth in P)b. What has to change to make an aggregate demand curve shift?O inflation (growth in P)spending growth (growth in Morowth in :)b. What has to change to make an aggregate demand curve shift?inflation (growth in P)O spending growth (growth in M + growth in v)O real GDP growth (growth in Y)c. Identify each statement that must be false according to the quantity theory.Last year, spending grew at 10%, real growth was 5%, and inflation was -5%.Last year, spending grew at 100%, real growth was 0%, and inflation was 20%.Last year, spending grew at 5%, real growth was 5%, and inflation was 2%.Last year, spending grew at 4%, real growth was -2%, and inflation was 6%.Last year, spending grew at 10%, real growth was 4%, and inflation was 6%.

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Let's have some practice with the aggregate demand curve. If you want to draw it in your familiar y = b + mx format, you can think of it this way:

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter25: The Keynesian Perspective

Section: Chapter Questions

Problem 1SCQ: In the Keynesian framework, which of the following events might cause a recession? Which might cause...

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Refer to the accompanying figure. LRAS Inflation a A 0, y' Output O O An economy is currently in long-run equilibrium at point B, at an inflation rate of m, which is too high to sustain economic growth. If an anti-inflationary policy is enacted, the economy will be in short-run equilibrium at point creating gap. O SRAS O SRAS AD' AD A; an expansionary A; a recessionary D; a recessionary D; an expansionary
2. Explaining short-run economic fluctuations A majority of economists believe that in the long run, real economic variables and nominal economic variables behave independently of one another. For example, an increase in the money supply, a (real/nominal) variable, will cause the price level, a (real/nominal) variable, to increase but will have no long-run effect on the quantity of goods and services the economy can produce, a (real/nominal) variable. The notion that an increase in the quantity of money will impact the price level but not the output level is known as (price neutrality/monetary neutrality/the quantitiy theory). However, in the short run, most economists believe that real and nominal variables are intertwined. Economists use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incomplete short-run aggregate demand (AD) and aggregate supply (AS)…
Suppose the economy is in long-run equilibrium. If there is a sharp increase in the price of a critically important resource that is used in an economy such as oil and higher expected inflation while, at the same time, consumers become increasingly confident about their employment prospects and businesses more optimistic regarding the profitability of their investments, then we would expect that in the short-run, A. the price level will fall, and real GDP might rise, fall, or stay the same B. real GDP will fall and the price level might rise, fall, or stay the same. C. the price level will rise, and real GDP might rise, fall, or stay the same. D. real GDP will rise and the price level might rise, fall, or stay the same.
While hyperinflations are always caused by rapid growth in the money supply, they can be intensified by the actions of households and firms trying to protect themselves from inflation by spending money as soon as they receive it. During a hyperinflation, the velocity of money is likely to Use the quantity equation to show how the change in vel Holding the growth rate of real GDP constant, this chang increase remain unchanged decrease ▼inflation image 1
2. Explaining short-run economic fluctuations A majority of economists believe that in the long run, real economic variables and nominal economic variables behave independently of one another. For example, an increase in the money supply, a no long-run effect on the quantity of goods and services the economy can produce, a and nominal variables is known as VERTICAL AXIS However, in the short run, most economists believe that real and nominal variables are intertwined. Economists use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incomplete short-run aggregate demand (AD) and aggregate supply (AS) diagram-it needs appropriate labels for the axes and curves. In the questions that follow you will identify some of the missing labels. The aggregate HORIZONTAL AXIS variable, will cause the price level, a AS AD (?) variable, to increase but will have variable. The distinction…
"Japan's real gross domestic product (GDP) inched up 0.3 percent in the second quarter compared to the previous quarter, up 1.3 percent at an annual rate, according to statistics released by the Cabinet Office on Monday." Japan's real gross domestic product (GDP) is equal to the sum of current year prices multiplied by base year quantities. Select one: True O False "A higher inflation rate will be built into the expectations of workers and a higher inflation rate will offset the incentive effect on workers to work more under the higher nominal wage increase." This inturn will skew the distribution of income and lead to greater income inequality. Select one: O True O False
Price Level 0 A B Real GDP Comparing points A and B on this graph, which of the following is true? O At point B, there would be less employment and higher unemployment than at point A. O At point B, there would be a lower wage than at point A. O At point B, there is a higher price level that increases the quantity of real GDP supplied. O At point A, there is greater pressure on the price level and inflation than at point B. O At point A, with a lower wage rate, aggregate supply has decreased compared to point B.
2. Assume the short-run aggregate supply curve can be expressed algebraically as: Y = 4,500 + 3,000π and the dynamic aggregate demand curve can be written as: Y = 5,000 – 1,000π a. Find the numerical value for the short-run inflation rate? Show your work. b. Find the numerical value for equilibrium output in the short run? Show your work.
Question 38 FIGURE 1 MS r2 P2 P1 MD2 AD MD, Y2 REFER TO FIGURE 1. What does Y represent on the horizontal axis of the right-hand graph? O nominal output the rate of inflation O the quantity of money O real output
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In the short run, what is the impact on the price level and real GDP of each ofthe following:a. An increase in consumption brought about by a decrease in interest rates.b. A decrease in exports brought about by an appreciation of the dollar.c. A rise in wage rates.d. A beneficial supply shock.e. An adverse supply shock.