Price Level 0 Q 10 ASLR O directly from a to h. Q O from a to g to h. O directly from a to d. O from a to c to h. O h e 60 AS₁ AS₂ AS3 AD₁ AD₂ Real GDP Refer to the figure and assume the economy initially is in equilibrium at point a. In the new classical theory, a fully anticipated decrease in aggregate demand from AD 2 to AD 3 would move the economy AD3

Price Level 0 Q 10 ASLR O directly from a to h. Q O from a to g to h. O directly from a to d. O from a to c to h. O h e 60 AS₁ AS₂ AS3 AD₁ AD₂ Real GDP Refer to the figure and assume the economy initially is in equilibrium at point a. In the new classical theory, a fully anticipated decrease in aggregate demand from AD 2 to AD 3 would move the economy AD3

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

Price Level
0
Q'
ASLR
O directly from a to h.
O from a to g to h.
O directly from a to d.
O from a to c to h.
0.
O.
h
e
9
12
AS₁
AS2
AS3
Real GDP
Refer to the figure and assume the economy initially is in equilibrium at point a. In the new
classical theory, a fully anticipated decrease in aggregate demand from AD 2 to AD 3 would
move the economy
AD₁
AD₂
AD3

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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
On a graph, use the Keynesian AS-AD model to show how the economy will respond in the short-run and the long-run to a tax cut, assuming Ricardian equivalence doesn't hold. What happens to real GDP and the unemployment rate in the short-run and the aggregate price level in the long-run?
c and d
In the extended version of the classical model, based on the misperceptions theory. a. Graphically show the effect of an unanticipated increase in money supply using the AS-AD model. Make sure to label the short-run equilibrium point. b. Repeat part (a). This time, assume that the public was anticipating this increase in money supply. c. Is the short-run equilibrium in part (b) point the same as in part (a). Why or why not?
2. The graph below shows the AD-AS model in short-run equilibrium at price level Po and level of real GDP at Yo. Label the following: AD, SRAS, LRAS, Po and Yo. P Y A. Is this SR equilibrium a recessionary gap or an inflationary gap? Why is the undesirable? B. Assume Congress and the President decide to act. How would you suggest they alter each of the following (1,↓↓, or no change)? - Taxes - Transfer Payments -Government Spending C. Show the effects of these changes in the space above. Assume this intervention brings the economy back to potential GDP. D. As the economy moves from Yo to Yp, what happens to the following (1,↓, or no change)? - Real GDP - the unemployment rate - The price level - the rate of inflation
12
hi, posting this again. will you let me know if these are correct? 15- In the Keynesian range of the AS curve, increases in taxes will raise unemployment- true 16- If the MPC is .95 and taxes are increased by $20, AD will increase by $380- true 17- If Y* is more than Yfe, the economy is in the classical range of the AS curve- true