Plot the above AD-AS curves on the (Y, T) diagram. Describe the slopes of both the AD curve and the AS curve. b. If the economy is currently at its long-run trend, what should be the equilibrium output? What is the equilibrium inflation rate in this economy? What should be the equilibrium expected inflation rate in this economy? c. Assume that expected inflation rate is constant at 5 percent. What happens when the oil price increases by 5 percent (v = 0.05)? What is the equilibrium level of output? What is the equilibrium level of inflation? d. Assume that expected inflation rate is constant at 5 percent. What happens for today and 1 period after when money supply increases by 1 (m = 1)? (current period and the long-run period) What is the equilibrium level of output today and 1 period after? What is the equilibrium level of inflation today and 1 period after?

Plot the above AD-AS curves on the (Y, T) diagram. Describe the slopes of both the AD curve and the AS curve. b. If the economy is currently at its long-run trend, what should be the equilibrium output? What is the equilibrium inflation rate in this economy? What should be the equilibrium expected inflation rate in this economy? c. Assume that expected inflation rate is constant at 5 percent. What happens when the oil price increases by 5 percent (v = 0.05)? What is the equilibrium level of output? What is the equilibrium level of inflation? d. Assume that expected inflation rate is constant at 5 percent. What happens for today and 1 period after when money supply increases by 1 (m = 1)? (current period and the long-run period) What is the equilibrium level of output today and 1 period after? What is the equilibrium level of inflation today and 1 period after?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Imagine an economy, where the SRAS in terms of inflation is given by II=5+Y, where Y is output. Imagine that the long run AS curve is given by Y=2. (25 marks) a) Give the equation of the AD curve (you can take liberties), if we assume that initially, the economy is at its long-run equilibrium. Justify. b) Imagine that your chosen AD curve's intercept goes up by one unit due to an expansionary monetary policy. What will be the new final equilibrium after this change? Justify. c) What will be the equilibrium after two periods of adjustment? Justify. d) Assume that before all the changes in the economy, in the initial, long-run equilibrium, the interest rate was 4 percent. Give an IS and an LM curve that are compatible with this initial equilibrium. Justify. e) What are the IS and LM curves going to be at the very end of the adjustment process, i.e., in the new long run equilibrium? Justify.
In the dynamic model of AD-AS in the diagram to the right, the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues policy. This will result in OA. short term interest rates higher than what would occur if no policy had been pursued. OB. unemployment rates higher than what would occur if no policy had been pursued. OC. real GDP lower than what would occur if no policy had been pursued. OD. inflation higher than what would occur if no policy had been pursued. MIDD Price level 102 100 LRAS, A 10 Real GDP B 00 LRAS AD. 10.8 11 SRAS₁ SRAS, AD₂
Hh.111.
Two potential causes of inflation above target in the AD-AS model: Demand-pull inflation: This occurs when aggregate demand (AD) increases more than the long-run aggregate supply (LRAS). In the AD-AS diagram, this would be represented by a rightward shift of the AD curve. The result is a higher price level and real GDP beyond the long-run macroeconomic equilibrium level. Cost-push inflation: This occurs when the short-run aggregate supply (SRAS) curve shifts to the left due to increased production costs, such as rising wages or input prices. In the AD-AS diagram, this would be represented by a leftward shift of the SRAS curve. The result is a higher price level and a reduction in real GDP. how do i graph this information in an ad-as diagram
Use shifts of the AD and AS curves to explain (a) the U.S. experience of strong economic growth, full employment, and price stability in the late 1990s and early 2000s and (b) how a strong negative wealth effect from, say, a precipitous drop in the stock market could cause a recession even though productivity is surging.
Consider the figure to the right. What change in the position of the aggregate demand curve could generate deflation that is, a decrease in the equilibrium price level? What type of variation in the quantity of money placed into circulation by the Bank of Canada could generate such a change in the position of the aggregate demand (AD) curve? A fall in the equilibrium price level could be caused by Canada could generate such a change in the position of the aggregate demand (AD) curve by the quantity of money placed into circulation. in aggregate demand. The Bank of 1.) Using the line drawing tool, draw a new AD curve that shows the effects of decreasing the quantity of money in circulation. Label your line "AD2." 2.) Using the point drawing tool, indicate the economy's new long-run equilibrium price and level of real GDP. Label this point "E₂. Carefully follow the instructions above, and draw only the required objects. Price Level LRAS₁ E₁ Real GDP per Year ($ trillions) AD₁
Suppose that you have an AEF at a price level of p = $100 given by: AEF = 1,200+ 0.40Y Suppose also that for every $1 increase in the price level, desired consumtion decreases by $1. Given this, what is the slope of Aggregate Demand (AD) in the AD-AS model? Note: round your answers to three decimal places.
Q.1.17 A decrease in the price level will: (a) shift the AS curve to the left.(b) shift the AD curve to the left.(c) shift the AS curve to the right.(d) leave both the AD curve and the AS curve unchanged.