Suppose the U.S. economy is in equilibrium at a potential output of $10 trillion so that unemployment is at the natural rate. At the beginning of the year,the Federal Reserve announces that its monetary policy will aim to maintain output at potential output and sustain the current price level throughout theyear. Firms and workers negotiate annual wage and resource price agreements based on the belief that the Fed is committed to price stability.The following graph shows the aggregate demand curve (AD), the long-run aggregate supply curve (LRAS), and the short-run aggregate supply curve(SRAS) at an expected price level of 120.Now suppose that several months later, the Fed abandons its stated goal of price stability and shifts toward an expansionary monetary policy.On the following graph, show the short-run effect of this policy by shifting the appropriate curve or curves.Note: Select and drag one, both, or all of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snapsback to its original position, just drag it a little farther.PRICE LEVEL160150140130120110100LRASSRASADAD|SRASLRAS 68 9101112QUANTITY OF OUTPUT (Trillions of dollars)713In the short run, the expansionary monetary policy will result in a price level ofO14On the previous graph show the long-run effect of the expansionary monetary policy by shifting the appropriate curve or curves.OBecause the wages workers agreed upon at the beginning of the year now buyrenegotiate wages, assuming a price level ofSuppose next year, the Fed once again announces that its monetary policy is aimed at maintaining price stability at the level reached last year (the pricelevel you found in the previous question) and output at potential output ($10 trillion). However, because the government reneged on its promise lastyear, workers and firms suspect that the Fed will again shift to an expansionary policy. As a result, in anticipation of the Fed's actions, wage rates andresource prices are negotiated in the expectation ofinflation in the current year.than had been expected in real terms, workers eventuallyWhich of the following most accurately describes the government response to new wage rates and resource price agreements and the long-termeconomic outcome?The Fed pursues a stable monetary policy, and the economy's output rises.The Fed once again shifts toward an expansionary policy, and the economy's output declines.The Fed shifts toward a restrictive policy, and the economy's output returns to potential output.The Fed once again shifts toward an expansionary policy, and the economy's output returns to potential output.Complete the following table to compare the results of an unanticipated expansionary policy to those of an anticipated expansionary policy in the shortrun and long run. Determine whether, in the short run, the unemployment rate increases, decreases, or remains unchanged relative to the natural rate

Expansionary monetary policy is a policy of a central bank to stimulate economic growth and combat…

Suppose the U.S. economy is in equilibrium at a potential output of $10 trillion so that unemployment is at the natural rate. the beginning of the year, the Federal Reserve announces that its monetary policy will aim to maintain output at potential output and sustain the current price level throughout the year. Firms and workers negotiate annual wage and resource price agreements based on the belief that the Fed is committed to price stability. The following graph shows the aggregate demand curve (AD), the long-run aggregate supply curve (LRAS), and the short-run aggregate supply curve (SRAS) at an expected price level of 120. Now suppose that several months later, the Fed abandons its stated goal of price stability and shifts toward an expansionary monetary policy. On the following graph, show the short-run effect of this policy shifting the appropriate curve or curves. Note: Select and drag one, both, or all of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps

Suppose the U.S. economy is in equilibrium at a potential output of $10 trillion so that unemployment is at the natural rate. the beginning of the year, the Federal Reserve announces that its monetary policy will aim to maintain output at potential output and sustain the current price level throughout the year. Firms and workers negotiate annual wage and resource price agreements based on the belief that the Fed is committed to price stability. The following graph shows the aggregate demand curve (AD), the long-run aggregate supply curve (LRAS), and the short-run aggregate supply curve (SRAS) at an expected price level of 120. Now suppose that several months later, the Fed abandons its stated goal of price stability and shifts toward an expansionary monetary policy. On the following graph, show the short-run effect of this policy shifting the appropriate curve or curves. Note: Select and drag one, both, or all of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps

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

Suppose the economy is in a situation of moderate unemployment, and then an exogenous increase of aggregate demand occurs. (Assume the aggregate demand schedule follows the pattern set out by the mainstream story.) Use short run aggregate supply and aggregate demand analysis to discuss in detail the effects of this demand change on the price level and real GDP in the short run. Explain how the situation could change in the long run after the happenings in the first part.
Please let me know if my answer is correct. I am between C and D. If you can please also let me know why the other choices aren't correct
Illustrate graphically what would happen in the short run and in the long run to the price level and Real GDP if individuals hold rational expectations, prices and wages are flexible, and individuals overestimate the rise in aggregate demand (bias upward).
The following graph represents the short-run aggregate supply curve (SRAS) based on an expected price level of 120. The economy's full- employment output level is $9 trillion. Major unions across the country have recently negotiated three-year wage contracts with employers. The wage contracts are based on an expected price level of 120, but the actual price level turns out to be 160. Show the short-run effect of the unexpectedly high price level by dragging the curve or moving the point to the appropriate position. PRICE LEVEL (CPI) 240 200 160 40 0 0 3 SRAS[120] 6 9 12 REAL GDP (Trillions of dollars) 15 18 SRAS[120] 0 (?) Interpret the change you drew on the previous graph by filling in the blanks in the following paragraph:
The following events shift either aggregate demand, aggregate supply, both or neither. Using a diagram, illustrate the effect of the events on the economy. In particular, explain the effect of each event on price level, real GDP and equilibrium in the economy. A) A recent business survey reported that business confidence has declined. B) Government cuts the rate of personal income tax after a pandemic caused an economic slowdown. C) A recent flooding in a small rural region destroyed the potato crop. D) A booming economy in a neighbouring country has drawn many working age people (and their families) to emigrate there in search of jobs and better life.
The U.S. economy is initially in short-run macro-equilibrium. Assume oil prices fall. As a result, we observe the following in our economy Question 2 options: a) Both the price level and real GDP decrease b) The price level falls and real GDP increases c) The price level increases and real GDP falls d) Both the price level and real GDP increase.
Start at full-employment (FE) equilibrium with flexible wages and worker misperception of price level changes in the short run. Suppose then that we have an increase in Aggregate Demand. First, think about the short-run effects on price level (P), output level (Q), wage level (W), employment (L), and unemployment (U)? In the long run, once workers realize that there was a change in the price level, they will change the supply curve of labor. When all subsequent wage and price adjustments take place, we will be in a new long-run equilibrium. From the original full-employment (FE) equilibrium to the final one, what is the net change in the price level (P), output level (Q), the nominal wage (W), employment (L), unemployment rate (U), and the real wage (W/P)? Group of answer choices a) An increase in P, no change in Q, no change in W, an increase in L, an increase in U and no change in W/P. b) An increase in P, a decrease in Q, a decrease in W, a decrease in L, an…
Suppose that the full employment level of nominal GDP rises in one year from $16.8 to $18.0 trillion. The long-run equilibrium price level, however, remains unchanged at 120. By how much (in real dollars) has the long-run aggregate supply curve shifted to the right from one year to the next? $ trillion. (Round your answer to two decimal places.)
Should the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy, as well as the pros and cons of using these tools to combat economic fluctuations. The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves for the U.S. economy in May 2026. Suppose the government chooses to intervene in order to return the economy to the natural level of output by using policy. Depending on which curve is affected by the government policy, shift either the AS curve or the AD curve to reflect the change that would successfully restore the natural level of output. PRICE LEVEL 150 50 30 130 110 8 70 80 50 20 20 22 24 LRAS 28 AS OUTPUT (Trillions of dollars) AD 28 30 AD ਵੇ ㅁ AS ? Suppose that in May 2026 the government successfully carries out the type of policy necessary to restore the natural level of…
The U.S. economy is initially in short-run macro-equilibrium. Assume that China falls into a deep recession. As a result, we observe the following in our economy: Question 34 options: a) Both the price level and real GDP increase. b) The price level falls and real GDP increases c) Both the price level and real GDP decrease d) The price level increases and real GDP falls
The following graph shows the aggregate demand curve (AD), the short-run aggregate supply curve (AS), and the long-run aggregate supply curve ( LRAS) for a hypothetical economy. Initially, the expected price level equals the actual price level, and the economy experiences long-run equilibrium at a natural level of output of $100 billion.. Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs of producing goods and services. Use the graph to help you answer the questions about the short-run and long-run effects of the increase in production costs that follow. (Note: You will not be graded on any adjustments made to the graph.) Hint: For simplicity, ignore any possible impact of the severe weather on the natural level of output.
Suppose the economy is currently in equilibrium, with unemployment equal to the natural rate, and that people form expectations rationally. If the Federal Reserve announces that it is going to decrease the money supply, then: the economy will move to a lower price level but remain at potential GDP. the economy will permanently move to a higher level of output and a higher price level. the economy will permanently move to a lower level of output and a lower price level. the economy will move to a higher GDP level but remain at a constant price level.