AS₁ AS₂LL-AD₂P₁AD₁Q₂Q₁Real Domestic OutputPrice Level0AD4AD 3Refer to the graph. Assume that the economy is initially in equilibrium at the intersection of AD₁ and AS₁. Suppose that there is economic growth thatshifts AS₁ to AS2. If the application of a monetary rule is designed to shift AD₁ to AD3, but because of pessimistic business expectations AD₁ only shiftto AD2, then mainstream economists would suggest that the actions to be taken to avoid deflation would be to implement a(n) Multiple Choiceexpansionary fiscal policy and an easy money policy.contractionary fiscal policy and a tight money policy.expansionary fiscal policy and a tight money policy.contractionary fiscal policy and an easy money policy.

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P₁ P₂ P₁ AS₁ AS₂ AD4 AD₁ AD₂ AD₁ Q₁ Q₂ Real Domestic Output fer to the graph. Assume that the economy is initially in equilibrium at the intersection of AD₁ and AS₁. Suppose that there is economic growth that fts AS₁ to AS2. If the application of a monetary rule is designed to shift AD₁ to AD3, but because of pessimistic business expectations AD₁ only shift: AD2, then mainstream economists would suggest that the actions to be taken to avoid deflation would be to implement a(n)

P₁ P₂ P₁ AS₁ AS₂ AD4 AD₁ AD₂ AD₁ Q₁ Q₂ Real Domestic Output fer to the graph. Assume that the economy is initially in equilibrium at the intersection of AD₁ and AS₁. Suppose that there is economic growth that fts AS₁ to AS2. If the application of a monetary rule is designed to shift AD₁ to AD3, but because of pessimistic business expectations AD₁ only shift: AD2, then mainstream economists would suggest that the actions to be taken to avoid deflation would be to implement a(n)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

AS₁ AS₂
LL
-AD₂
P₁
AD₁
Q₂
Q₁
Real Domestic Output
Price Level
0
AD4
AD 3
Refer to the graph. Assume that the economy is initially in equilibrium at the intersection of AD₁ and AS₁. Suppose that there is economic growth that
shifts AS₁ to AS2. If the application of a monetary rule is designed to shift AD₁ to AD3, but because of pessimistic business expectations AD₁ only shift
to AD2, then mainstream economists would suggest that the actions to be taken to avoid deflation would be to implement a(n)

Multiple Choice
expansionary fiscal policy and an easy money policy.
contractionary fiscal policy and a tight money policy.
expansionary fiscal policy and a tight money policy.
contractionary fiscal policy and an easy money policy.

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Step 1: Equilibrium at the intersection of AD and AS.

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did keynes believe that wages/prices were sticky in general-up and down? or just down?
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According to the Keynesian model, which answer might cause a recession but wouldn't cause inflation for Country X. O a decrease in interest rates O a decrease in a major trading partners export prices a major trading partner's economic slowdown O an increase in domestic investment
150 130 110 PRICE LEVEL 8 90 70 50 20 LRAS AS 24 OUTPUT (Trillions of dollars) AD 20 30 AD D AS Suppose that in January 2026 the government successfully carries out the type of policy necessary to restore the natural level of output described in the previous question. In March 2026, consumer confidence increases, leading to an increase in consumer spending. Due to the associated with implementing monetary and fiscal policy, the impact of the government's new policy will likely once the effects of the policy are fully realized.
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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.