Solve the provided question below in attchment??? Question 2Consider the AD-AS model discussed during the lectures. Assume that theaggregate demand curve is given by Y=8-0.5 m, that the long run aggregatesupply curve is given by Yp-7, that the short run aggregate supply curve isgiven by n = 1_expect + 0.3(Y-Yp), and that the monetary rule is given byr=1+0.3 T.(a) What is the economic interpretation behind the aggregate demandcurve? How does investment change when you move along the ADcurve by considering combinations for which inflation decreases andoutput increases?(b) Suppose the economy is in equilibrium at the potential level ofoutput, with inflation expectations equal to actual inflation, whichequals 2%. A loss of consumer confidence hits the economy and leadsto a sudden drop in consumption. Use the model to interpret whathappens in the short run and in the long run if the central bank doesnot intervene exogenously with an expansionary monetary policy.(c) Is fiscal policy more useful, less useful or equally useful compared tomonetary policy to avoid the loss of confidence generating arecession? Discuss and compare how fiscal and monetary policy can beseparately used in response to the dynamics caused by the loss ofconsumer confidence. '

(a) AD curve slopes negative as we can see from the function because of the wealth impact on the…

Question 2 Consider the AD-AS model discussed during the lectures. Assume that the aggregate demand curve is given by Y=8-0.5 m, that the long run aggregate supply curve is given by Yp=7, that the short run aggregate supply curve is given by T = T_expect + 0.3(Y-Yp), and that the monetary rule is given by r=1+0.3 T. (a) What is the economic interpretation behind the aggregate demand curve? How does investment change when you move along the AD curve by considering combinations for which inflation decreases and

Question 2 Consider the AD-AS model discussed during the lectures. Assume that the aggregate demand curve is given by Y=8-0.5 m, that the long run aggregate supply curve is given by Yp=7, that the short run aggregate supply curve is given by T = T_expect + 0.3(Y-Yp), and that the monetary rule is given by r=1+0.3 T. (a) What is the economic interpretation behind the aggregate demand curve? How does investment change when you move along the AD curve by considering combinations for which inflation decreases and

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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