Suppose an economy begins at AD and AS in long-run equilibrium with real GDP equal to Y*; the price level is stable at Po. a. Suppose the central bank announces that it will implement an expansionary monetary policy that will shift the AD curve up by 5 percent. Does the shift of the AS curve following this announcement depends on whether workers and firms believe the central bank's announcement? Explain. OA. Yes. Workers' and firms' expectations of inflation put pressure on nominal wages, which is what causes the AS curve to shift. Workers' and firms' expectations of inflation will not change if they do not believe the announcement. OB. No. The bank's announcement will affect the shift of the AS curve, regardless of whether workers and firms believe it. Yes Workers' and firms' expectations of real interest rates put pressure

Suppose an economy begins at AD and AS in long-run equilibrium with real GDP equal to Y*; the price level is stable at Po. a. Suppose the central bank announces that it will implement an expansionary monetary policy that will shift the AD curve up by 5 percent. Does the shift of the AS curve following this announcement depends on whether workers and firms believe the central bank's announcement? Explain. OA. Yes. Workers' and firms' expectations of inflation put pressure on nominal wages, which is what causes the AS curve to shift. Workers' and firms' expectations of inflation will not change if they do not believe the announcement. OB. No. The bank's announcement will affect the shift of the AS curve, regardless of whether workers and firms believe it. Yes Workers' and firms' expectations of real interest rates put pressure

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter20: Monetary Policy

Section20.A: Policy Disputes Using The Self Correcting Aggregate Demand And Supply Model

Problem 4SQP

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Take a look again at Figure 1 (originally from the page in the text titled "Neoclassical and Keynesian Perspectives in the AD-AS Model.") Price Level Pn Pi Pk ADK AD Yk ADn Ek Keynesian zone Real GDP Ei LRAS En SRAS Neoclassical zone Intermediate zone Yi Yn Figure 1. Keynes, Neoclassical, and Intermediate Zones in the Aggregate Supply Curve. Near the equilibrium Ek, In the Keynesian zone at the far left of the SRAS curve, small shifts in AD, elther to the right or the left, will affect the output level Yk, but will not much affect the price level. In the Keyneslan zone, AD largely determines the quantity of output. Near the equilibrium En. In the neoclassical zone at the far right of the SRAS curve, small shifts in AD, elther to the right or the left, will have relatively little effect on the output level Yn, but Instead will have a greater effect on the price level. In the neoclassical zone, the near-vertical SRAS curve close to the level of potential GDP largely determines the…
Owing to the global rise of fertilizer prices in 2022 (in turn caused by the Russian invasion of Ukraine), the country experienced a shortage in some agricultural commodities. Using the AS-AD model, which of the following is an anticipated effect of this phenomenon? O a. Aggregate demand will rise in the short run. b. Aggregate demand will be higher than initial level in the long run. O C. Prices will quickly rise in the short run. O d. Prices will fall even below the pre-supply shock level in the long run.
Consider the AD/AS model below with a constant rate of inflation. No exogenous AD or AS shocks are occurring. Price Level P3 2 Po 0 FIGURE 29-1 Y" E3 E2 E1 Eo Real GDP AS3 AS2 AS1 ASO AD3 AD2 AD1 ADO Select one: O a an annual shift upward of the AS curve by 3%. b. an annual increase in the inflation rate of 3%. Oc. an annual shift upward of the AD curve by 3%. d. an annual increase in the equilibrium price level of 3%. Oe. Not applicable. The diagram shows the price level, not the inflation Refer to Figure 29-1. A constant rate of inflation of 3% is portrayed in an AD/AS diagram like this one as
2. The graph below shows the AD-AS model in short-run equilibrium at price level Po and level of real GDP at Yo. Label the following: AD, SRAS, LRAS, Po and Yo. P Y A. Is this SR equilibrium a recessionary gap or an inflationary gap? Why is the undesirable? B. Assume Congress and the President decide to act. How would you suggest they alter each of the following (1,↓↓, or no change)? - Taxes - Transfer Payments -Government Spending C. Show the effects of these changes in the space above. Assume this intervention brings the economy back to potential GDP. D. As the economy moves from Yo to Yp, what happens to the following (1,↓, or no change)? - Real GDP - the unemployment rate - The price level - the rate of inflation
According to the Keynesian model, which of the following would NOT increase aggregate demand? Government expands its social projects and increases taxes to balance the budget а. O b. A decrease in the number of employees in the government agencies c. Government drops the taxes for private businesses O d. Government establishes a new agency that helps the unemployed to find a job е. Government changes the laws whereby the tax of the interest earned becomes changes from a positive number to zero.
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When a supply-side shock is assumed to be permanent: O only the LRAS curve shifts. O only the SRAS curve shifts. O both the LRAS curve and the SRAS curve shift. O nither the LRAS curve nor the SRAS curve shifts.
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