Starting at E₁ suppose the Fed uses expansionary monetary policy then LRAS Aggregate price level, P P₁ P₂ P₁ ..... E₁ E₂ AD₁ Yo Y₁ SRAS₂ AD₂ SRAS₁ Real GDP O AD₁ will shift to AD2 and the economy will move from E₁ to E2. O SRAS₁ will shift to SRAS2 and the economy will move from E₂ to E3. SRAS₂ will shift to SRAS₁ and the economy will move from E3 to E2. AD₂ will shift to AD₁ and the economy will move from E₂ to E₁.

Starting at E₁ suppose the Fed uses expansionary monetary policy then LRAS Aggregate price level, P P₁ P₂ P₁ ..... E₁ E₂ AD₁ Yo Y₁ SRAS₂ AD₂ SRAS₁ Real GDP O AD₁ will shift to AD2 and the economy will move from E₁ to E2. O SRAS₁ will shift to SRAS2 and the economy will move from E₂ to E3. SRAS₂ will shift to SRAS₁ and the economy will move from E3 to E2. AD₂ will shift to AD₁ and the economy will move from E₂ to E₁.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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← 2:12 Principles of Macroe... Vo LTE 4G+ R vecmeccssary: what would have happened to aggregate demand and aggregate output: 6 Consider two economies - Avalon and Eternia. In Avalon, the central bank uses interest rates to conduct monetary policy. In Eternia, the central bank conducts monetary policy by changing the money supply. a Which economy would have a more effective monetary policy? Explain. b Which country would have higher inflation? Explain. 33% c Why can't Avalon and Eternia set both interest rates and money supply? 7 This chapter explains that expansionary monetary policy reduces the interest rate and thus stimulates demand for consumption and investment goods. Explain how such a policy also stimulates imports, exports and overall net exports. (You may need to refer to chapter 13 to answer this question.) 8 Suppose economists observe that an increase in government spending of $10 billion raises the total demand for goods and services by $30 billion. a Is crowding out…
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Which of the following statements is true for the scenario illustrated in the below diagram? LRAS Price Level (base year = 100) 120 110 100 90 80 400 SRAS E₁ 700 Eo AD AD₁ 500 600 Real Output (constant dollars) 800 O it illustrates a recessionary gap at Eo Oit illustrates expansionary monetary policy by shifting ADO to AD1 O it illustrates procyclical monetary policy O it can be caused by a tightening of the money supply, also known as contractionary monetary policy
The governor of the RBNZ announces that the economy is doing better than expected. He announces that he will order a monetary contraction. This policy will: O a. Shift the IS curve downwards O b. Shift the LM curve downwards O C. Shift the IS curve upwards d. Shift the LM curve upwards
QUESTION 3 Refer to the graph shown below. Suppose the economy is initially at A but then the Fed adopts a contractionary monetary policy. Using the AS/AD model reasoning, this policy will cause the economy to move to LAS Price level C D 4 0 OC in the short run COC in the short run SAS, SAS, AD AD, SAS, AD, Bel output CAA in the short run and the long run. B in the short run and the long run and A in the long run. and E in the long run.
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If the central bank wa nts to expand aggregate demand, it ca n ___ the money supply, whichwould the interest rate.a. increase, increaseb. increase, decreasec. decrease, increased. decrease, decrease
On the LRAS model, if the Aggregate supply decreases, then the price level will__ and the quantity will O Decrease, Decrease Increase, Decrease O Decrease, Increase Increase, Increase During a recession, we would use while in an Inflationary period, we would use O Expansionary Monetary Policy, Contractionary Monetary Policy Retractionary Monetary Policy, Expansionary Monetary Policy O Contractionary Monetary Policy, Expansionary Monetary Policy O Expansionary Monetary Policy, Retractionary Monetary Policy On the LRAS, Aggregate supply is sloped while Aggregate demand is sloped * Downwards, Upwards O Upwards, Upwards O Downwards, Downwards O Upwards, Downwards As the Interest Rate increases, consumption and investment increase. * False O True O O O O O O
In the short run, a rise in the federal funds rate shifts the a. AD curve leftward. b. SAS curve leftward. c. LAS curve leftward. d. None of these because a decrease in the quantity of money does not shift a curve.
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