Refer to the table below. Real Output Demanded, Real Output Original, Billions Supplied, Billions Price Level $506 112 $513 508 106 512 510 100 510 512 94 507 514 88 502 Suppose that aggregate demand increases such that the amount of real output demanded rises by $7 billion at each price level. Instructions: Enter your answers as a whole number. a. By what percentage will the price level increase? percent Will this inflation be demand-pull inflation, or will it be cost-push inflation? (Click to select) b. If potential real GDP (that is, full-employment GDP) is $510 billion, what will be the size of the positive GDP gap after the change in aggregate demand? 2$ billion c. If government wants to use fiscal policy to counter the resulting inflation without changing tax rates, would it increase government spending or decrease it? (Click to select) ♥

Refer to the table below. Real Output Demanded, Real Output Original, Billions Supplied, Billions Price Level $506 112 $513 508 106 512 510 100 510 512 94 507 514 88 502 Suppose that aggregate demand increases such that the amount of real output demanded rises by $7 billion at each price level. Instructions: Enter your answers as a whole number. a. By what percentage will the price level increase? percent Will this inflation be demand-pull inflation, or will it be cost-push inflation? (Click to select) b. If potential real GDP (that is, full-employment GDP) is $510 billion, what will be the size of the positive GDP gap after the change in aggregate demand? 2$ billion c. If government wants to use fiscal policy to counter the resulting inflation without changing tax rates, would it increase government spending or decrease it? (Click to select) ♥

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Exhibit 10-4 Aggregate supply and demand curves AS 150 125 Price level 100 (CPI) E, 75 50 AD2 25 AD 0 2 4 6 8 10 12 Real GDP (billions of dollars per year) The increase in the price level as the economy moves from E 1 to E 2 in Exhibit 10-4 represents: a. demand-pull inflation. b. demand-shock inflation. c. cost-push inflation. d. wage push inflation.
Consider the figure to the right. If this country's government decides to increase its short-term spending, what happens to the short-run equilibrium price level, and why? Is this an example of demand-pull or cost-push inflation? Explain. 1.) Using the line drawing tool, draw either a new aggregate demand (AD) curve or a new short-run aggregate supply (AS) curve that shows the effects of temporary government spending increases. Properly label your line. 2.) Using the point drawing tool, indicate the economy's new short-run equilibrium price and level of real GDP. Label this point 'E₂.' Carefully follow the instructions above, and only draw the required objects. Price Level LRAS₁ Real GDP per Year (S trillions) AS₁ AD₁
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 medium run, if government purchases are increased and nominal money supply is decreased, we can expect that a. the interest rate will increase while aggregate demand and prices may increase, decrease, or remain the same b. aggregate demand and prices will increase but interest rates will not change c. aggregate demand and interest rates will decrease but prices will increase d. aggregate demand, prices, and the interest rate will all decrease e. the AD-curve will shift to the right and the AS-curve will shift to the left
Refer to the table below. Real Output Real Output Demanded, Original, Supplied, Billions Price Level Billions $504 108 $515 507 104 512 510 100 510 513 96 507 516 92 500 Suppose that aggregate demand increases such that the amount of real output demanded rises by $11 billion at each price level. Instructions: Enter your answers as a whole number. a. By what percentage will the price level increase? percent Will this inflation be demand-pull inflation, or will it be cost-push inflation? |(Click to select) b. If potential real GDP (that is, full-employment GDP) is $510 billion, what will be the size of the positive GDP gap after the change in aggregate demand? billion c. If government wants to use fiscal policy to counter the resulting inflation without changing tax rates, would it increase government spending or decrease it? |(Click to select) ♥
Use two graphs in the AD-AS framework to compare and contrast demand-pull and cost-push inflation. How do their causes differ? How do the outcomes (inflation, output, employment) differ?
“Members of Congress are interested in increasing the minimum wage from its current rate of $7.25 an hour to $15. What effect will this have on the unemployment rate for low-skilled workers? How is this likely to impact equilibrium output and the price level in the short run?"
Suppose that the economy is depicted in the graph to the right. Using the line drawing tool, show demand-pull inflation by correctly shifting aggregate demand. Label the new line 'AD, Carefully follow the instructions above, and only draw the required objects. stion 5.1 here to search
As the Federal Reserve sharply raises rates in the face if substantial inflationary pressures, economists are trying to gauge the extent to which the U.S. labor market is slowing. First, how might you try to measure labor market slack? Second, across the business cycle, describe how the gap between whatever is true unemployment, and a notion of “full” employment generally relates to inflationary pressures. Finally, relate this gap to the economy’s overall ‘output gap’ (actual GDP vs. potential GDP).
Using the graph, illustrate the long-run impact of the increase in government spending by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve in the appropriate directions PRICE LEVEL 240 200 2 200 400 600 800 OUTPUT (Bions of dollars) AS 1000 1200 þ 2þ 2 In the long run, due to the increase in government spending, the price level natural level of output, and the unemployment rate ? the natural rate. the quantity of gotput
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The country of Freeland has an aggregate demand curve determined by the equation Freeland also has a potential growth rate of 2%. Using this information, draw Freeland's aggregate demand (AD) and long-run aggregate supply (LRAS) curves on the graph. 12 LRAS 10 AD 8 7 3 2 0 2 1 012 34 5 6 789 10 Real GDP growth rate (%) What is the prevailing inflation rate in Freeland? prevailing inflation rate: