Suppose the economy is initially in macroeconomic equilibrium, with an output gap of 0%, unexpected inflation of 0%, and inflation expectations of 2%. A war in the Middle East disrupts oil supplies. a. Adjust the accompanying diagram to reflect this development. Set point A at the new combination of the output gap and unexpected inflation. 6

Suppose the economy is initially in macroeconomic equilibrium, with an output gap of 0%, unexpected inflation of 0%, and inflation expectations of 2%. A war in the Middle East disrupts oil supplies. a. Adjust the accompanying diagram to reflect this development. Set point A at the new combination of the output gap and unexpected inflation. 6

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

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.
(a) What events of the 1970s and 1980s made economists believe that the shortrun relationship between inflation and unemployment was unstable (not fixed and permanent)? (b) Explain, using a diagram(s) and the concept of stagflation, the relationship between shifts in the SRAS curve and the position of the short-run Phillips curve.
The text proposes the following model of expected inflation x = (1 - 0) x + 0,-1 What do we know about your process of the formation of expected inflation when 0 = 07 OA. Neither last year's inflation rate nor the long-run average inflation rate impact your view on this year's expected rate. OB. Last year's inflation rate will influence you to revise your estimates for this year's expected rate. OC. Regardless of what inflation was last year, you would expect it to be at the long-run average inflation rate this year. OD. Last year's inflation rate and the long-run average inflation rate have an equal impact on your view of this year's expected rate. What do we know about your process of the formation of expected inflation when 0-17 OA. Neither last year's inflation rate nor the long-run average inflation rate impact your view on this year's expected rate OB. Last year's inflation rate will be the only input for you to revise your estimates for this year's expected rate regardless of…
According to Friedman, in which of the following situations is the economy in long-run equilibrium? a. The expected economic growth rate is 3 percent and the actual inflation rate is 3 percent. b. The average inflation rate over the past five years is 2 percent and the expected inflation rate is 2 percent. c. The expected inflation rate is 3 percent and the actual inflation rate is 3 percent. d. The expected economic growth rate is 2 percent and the expected inflation rate is 2 percent.
Solve all questions compulsory..
All of the following statements about sticky prices are true except: Select one: a. for studying year-to-year fluctuations, most macroeconomists believe that price stickiness is a better assumption than is price flexibility b. the sticky-price model describes the equilibrium toward which the economy slowly gravitates c. in the short run, some wages and prices are sticky d. magazine publishers tend to change their newsstand prices only every three to four years
1.At which equilibrium point does the economy have inflationary gap and what is the value of such gap in percentage point 2.what government policy should be recommended for this specific macroeconomic problem ? 3. What does e1 represent?
Please draw the Philips curve with a positive relationship between aggregate output and inflation and another that shows an upward shift in the whole curve (brief explanation please as trying to understand it (: )