5. Macroeconomic equilibrium and the ranges of the aggregate supply curveThe following graph shows the aggregate demand (AD1) and aggregate supply (AS) curves for a hypothetical economy with Natural RealSDP of $11 trillion.PRICE LEVEL13012512011511010510095908.085The Simple Keynesian ModelAD₁AS11.09.09.510.010.5REAL GDP (Trillions of dollars)11.512.0ķAD+New Eq? Suppose consumers and businesses become more optimistic about future economic conditions, causing aggregate demand to increase bytotal $0.5 trillion at each price level (after all multiplier effects have taken place).On the previous graph, use the green line (triangle symbol) to show the new aggregate demand curve (AD2). Be sure that AD2 isparallel to AD1 (you can mouse over AD₁ to see its slope). Then use the black drop lines (cross symbol) to indicate the newmacroeconomic equilibrium after the shift of aggregate demand.The increase in aggregate demand leads to a movement along theequilibrium price level torange of the aggregate supply curve, causing theand the equilibrium level of Real GDP to

Aggregate Demand curve is the curve that represents or denote the sum of demands that an economy…

oeconomic equilibrium and the ranges of the aggregate supply curve owing graph shows the aggregate demand (AD1) and aggregate supply (AS) curves for a hypothetical economy with Natural Re $11 trillion. 8.0 85 The Simple Keynesian Model 9.0 AD₁ 9.5 AS 10.0 tions of dollars) 11.5 11.0 10.5 12.0 ķ + New Eq

oeconomic equilibrium and the ranges of the aggregate supply curve owing graph shows the aggregate demand (AD1) and aggregate supply (AS) curves for a hypothetical economy with Natural Re $11 trillion. 8.0 85 The Simple Keynesian Model 9.0 AD₁ 9.5 AS 10.0 tions of dollars) 11.5 11.0 10.5 12.0 ķ + New Eq

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider an AS AD diagram. What would happen in the model if Energy prices increased? Group of answer choices a. AD shifts right and prices increase while real GDP increases b. AS shifts left and prices increase while real GDP decreases c. AS shifts right and prices decrease while real GDP increases d. AD shifts left and prices decreases while real GDP decreases
If investment increases by 24 billion and the economy's MPC is 0 0.5, the aggregate demand curve will shift rightward by _____ billion dollars at each price level.
Draw and properly label an AD-AS model to show Keynesian, intermediate, and neoclassical zones. Then, briefly explain the levels of unemployment, inflation and real GDP in each zone, and also confirm whether all three goals of a macro economy are being achieved in each zone. 2. Draw and properly label the AD-AS graphs or one AD-AS graph to show recessionary and inflationary gaps. Then, discuss in detail how Keynesians suggest that recessionary and inflationary gaps be closed. 3. Draw and properly label AD-AS graphs or one AD-AS graph to show recessionary and inflationary gaps. Then, discuss in detail how neoclassicals suggest that recessionary and inflationary gaps be closed.
Consider the Keynesian Liquidity Constrained consumer (LCC). • (viii) What is the marginal propensity to consume out of temporary income? What does it depend on? (ix) What is the marginal propensity to consume out of permanent income? Does it depend on the same factors you mentioned in the previous question?
8a. Assume that an economy is at equilibrium at its potential GDP at $10 trillion and aprice level of 100. What would be the short-run impact of a significant fall in consumer confidence about the future? Provide an AD/AS model to support your answer. b. What policy would you recommend to the chairperson of the Federal Reserve? Be specific. Show the effect of this policy on your graph part a. c. What are the major goals of the Fed's monetary policy?
Consider a keynesian macromodel Y=(C0+G+I) / (1-c) where C0 is autonomus consumption, G is government consumption expenditure, I is investment expenditure, c is the marginal propensity to consume. Assume constant marginal productivity of labor. What will be the result of an increasing government consumption expenditure in this module, if not other paramiters are changed? a. Lower investment. b. Higher employment. c. Higher inflation. d. Lower employement.
Price level 110 105 100 96 1 AS Ful employment. AD₂ AD₁ 50 51 Real GDP (trillions of dollars per year) Suppose the economy in Exhibit 11-2 is in equilibrium at point E, and the marginal propensity to consume (MPC) is 0.75. Following Keynesian economics, the federal government can move the economy to full employment at point E₂ by: A increasing government tax revenue by approximately $33 billion. B decreasing government tax revenue by $100 billion. increasing government tax revenue by $100 billion. decreasing government tax revenue by $750 billion. decreasing government tax revenue by approximately $33 billion.
This will be a graph shifting question, which asks about the intuition of both the AD-AS figures and the l-NS figures, specifically relating them to long-term growth. 1. When we consider the equation for National Savings (NS), would an increase in Real GDP lead to an increase, decrease, or no change in the quantity of National Savings supplied? Explain your answer.
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).
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