Question 3: Consider an economy that is in equilibrium with output equal to Y*. There is then a significant reduction in the world's demand for this country'sgoods.(a) Illustrate the initial equilibrium in a diagram.(b) (b) What kind of shock occurred -aggregate demand or aggregate supply?Show the effect of the shock in your diagram.(c) (c) Explain the process by which the economy will adjust back toward Yin the long run. Show this in your diagram.(d) (d) Explain why policy makers may want to use a fiscal expansion torestore output back to Y * rather than wait for the process you described inpart (c). What role does downward wage stickiness play in the policy-maker's thinking?|*

Step 1:a. Initial equilibrium In the AD-AS model, the aggregate demand (AD) curve intersects the…

Answered: Question 3: Consider an economy that is…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Scenario : The US enters into a new free trade agreement. How does this affect Aggregate Demand and Supply? What are the corresponding effects on Unemployment and Inflation as a result? What fiscal and or monetary policies would you recommend to bring the economy back to Long Run Equilibrium? Why would or why wouldn't you support this trade policy?
Question 6: Assume an economy operates in the intermediate range of its aggregate supply curve. For each of the following changes in conditions, state the direction of the effect on: aggregate demand, aggregate supply, price level, real GDP. (a) A decrease in government expenditure in infrastructure Click or tap here to enter text. (b) A severe recession occurs in a country which has been a major importer of the nation's exports. Click or tap here to enter text. (c) The federal government increases business taxes Click or tap here to enter text. lity: Investigate END OF EXAMINATION
Question 14 Suppose investment spending falls and as a result firms reduce their level of production of good and services. We call this a supply shock. True False
Ch: 22! Economics
4. A large decline in government purchases: Suppose there is a large temporary decline in government purchases in the economy, financed by an unspecified decline in future lump sum taxes. (a) Analyze the effect of the shock in the labor market diagram of a standard DSGE model (with no sticky prices or wages). What is the effect on the real wage and employment in the short run? (b) How would your answer change if there are sticky prices? (c) Discuss how your answer relates to the impulse response functions shown in Figure 15.12. (Hint: That figure is for an increase in government pur- chases, so you need to switch the sign of the effects in that figure.) FIGURE 15.12 The Dynamic Effects of a Shock to Government Purchases Percent change Percent change 1 GDP 0.5 0.5- 0 Consumption -0.5 15 20 10 Quarters after the shock 0 -0.5- 5 Percent change 0.7 0.6 0.5- 0.4- 0.3- 0.2 0.1 0 0 5 Hours worked 20 10 15 Quarters after the shock 5 Percent change 0.4 0.3- 0.2 0.1 0 0 5 10 15 20 Quarters after…
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6. A price-taker firm is currently producing 50 units of output at an average total cost of $3 per unit. If the market price is $7, then the firm's total economic profit is a $4. b. S150. C. $200. d. $350.
D Question 20 A temporary disruption of oil supplies to the United States caused by geopolitical events would have which of the most likely impacts? A short-run adverse supply shock A long-run adverse supply shock A long-run beneficial supply shock Both beneficial and adverse supply shocks A short-run beneficial supply shock
The macro-environment market present opportunities for larger market however lot of considering should be taken before making a move into it.i. Describe what needs to be done before even considering the idea of taking advantage of the macro environment.ii. Analyze the driving factors for the venturing into the macro environment.iii. Explain the step that need to be taken to avoid the unexpected shocks of the market
(Supply Shocks) Give an example of an adverse supply shock and illustrate graphically. Now do the same for a beneficial supply shock.

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