Price Level LRAS₁ SRAS, SRAS ₁ AD 1 Real GDP In the graph above, an economy moves from point A to B after being hit by a supply shock. if the Central Bank wants to keep the unemployment rate at its natural level, what action should it take? O Lower interest rates.

Price Level LRAS₁ SRAS, SRAS ₁ AD 1 Real GDP In the graph above, an economy moves from point A to B after being hit by a supply shock. if the Central Bank wants to keep the unemployment rate at its natural level, what action should it take? O Lower interest rates.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Refer to the figure below. Which one of the following statements is FALSE (FIGURE 6)? Figure 6 Inflation rate (7) Unemployment E₂ AD Y* AS Output (Y)
Consider the Keynesian sticky wage model. Assume that the economy is operating close to, but not at, its zero lower bound (ZLB). Discuss the following: 1. Could a negative shock to the IS curve make the ZLB bind? Explain and illustrate graph- ically. 2. Could a shock to current productivity z make the ZLB bind? What would need to be the sign of this shock to make the ZLB bind? 3. In the data, in most episodes where the ZLB binds (the US in the wake of the Great Recession, Japan during the 1990s, and the US during the Great Depression), output is low. Given this, would a supply shock as the reason for a binding ZLB make empirical sense? 4. Intuitively, explain why changes in government spending have a bigger effect on output at the ZLB than away from it.
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