Now suppose that stock market grows sharply.Finally, suppose that there are no policy interventions and the economy is left to adjust on it's own.Price Level1200*1100-1000900-800700600*500400-300200100200 300 400 500 600 700 800Real GDPAs a result of this event, what is the new long-run price level?100900 1000 1100 12020

Gross domestic product is the final combination of goods and services in a country. GDP is an…

Now suppose that stock market grows sharply. Finally, suppose that there are no policy interventions and the economy is left to adjust on it's own. 1200 Price Level 1100- 1000 900- 800- 700- 600 500 400* 300- 200- 100- 200 300 400 500 600 700 800 Real GDP As a result of this event, what is the new long-run price level? 100 900 1000 1100 120

Now suppose that stock market grows sharply. Finally, suppose that there are no policy interventions and the economy is left to adjust on it's own. 1200 Price Level 1100- 1000 900- 800- 700- 600 500 400* 300- 200- 100- 200 300 400 500 600 700 800 Real GDP As a result of this event, what is the new long-run price level? 100 900 1000 1100 120

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5/2046511/quizzes/3587775/take 16. Consider starting from full-employment equilibrium in our Aggregate Demand and Supply model (with flexible wages and worker misperception of price level changes in the short run), at Po, QN on the output market graph below. Then we get a decrease in Aggregate Demand from Agg Do to Agg D1. P LR Agg S SR Agg S. P. P, Agg D Agg D, Q, We can say that O In the long run, P and Q will return to original levels when workers percèive the decrease in P. O In the long run, Q will increase back toward QN as workers take pay cuts that match the deflation rate. O at P1, Q1, we see that we had economic growth. O None of the other options. O at P1, Q1, we see that we were in an inflationary gap.
Use the AS-AD model to analyze the impact on the U.S. economy as a result of each of the listed events. Mention if AD and/or AS shift and in which direction. Also explain what the country will experience with respect to increase or decrease in short-run equilibrium real GDP and increase or decrease in the equilibrium price level. For each event, assume that the economy is originally in a full- employment equilibrium, mention if in the new equilibrium there is a recessionary gap or an inflationary gap. A) Congress raises income taxes. B) The Federal Reserve decreases the target for the federal funds rate. C) Migration to the US increases the working- age population. DJ Appreciation in the international value of the dollar.
Consider an economy (call it country G) that is implementing climate change legislation more rapidly than other countries (refer to them as ‘row’ for ‘rest of the world’). Explain how this decision by country G could affect its long-run markup. Using diagrams, explain your forecast for the effect of this decision on real wages, inequality and employment in G in the new equilibrium. In the light of your findings, what advice would you give to a policy maker in G?
Attached: figure 1: Hayek’s (Classical) AD-AS Model Question 1 Why does Hayek’s aggregate supply curve always lead to an equilibrium level of national output equal to the full-employment level of real GDP? Question 2 Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayek’s idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce? Question 3 Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not?
Suppose that the government is concerned about keeping pace with this long-term growth and ensuring that it maintains a stable price level in its long-term equilibrium. Therefore, it does act and decides to keep increasing the autonomous demand for investment in order to try and maintain a constant price level in the face of this productivity growth. 3. Does the AD-AS model predict that this strategy could be effective? What would we expect to happen to both p* and the equilibrium interest rates in this example? Explain your answer.
Refer to Figure 12-3. Suppose the economy is at point C. If investment spending decreases in the economy, where will the eventual long-run equilibrium be? Figure 12-3 Price level (GDP deflator, 2000100) OA O O B C D LRAS SRAS, SRAS * AD₁ AD₂ 0 None of the above Real GDP (trillions of 2000 dollars)
High rates of inflation, which lowers the unemployment rate consistent with the short run Phillip’s Curve, also drives or determines a nation’s long-run level of real GDP? True False
3. Graphically illustrate the Keynesian Model, show the equilibrium level of GDP (label it Ye) and the full employment level of GDP (label it Yf).
(a) Assume the world economy is initially in long run equilibrium, discuss (with the aid of an AD-AS diagram) how these two influences are impacting the world economy in the short run in terms of output and general price level.