Suppose there is a sudden decrease in government purchases that causes a shift in aggregate demand from AD, to AD₂. As a classical economist from Langoria, you explain that the shift in aggregate demand creates You also explain that will be affected in the short run. You note that such a gap leads to an unemployment rate that is to .As wages change, the explain that in the long run, the natural unemployment rate. This means curve shifts to the will be affected. that wages until Real GDP equals Natural Real GDP. Finally, you are certain

Suppose there is a sudden decrease in government purchases that causes a shift in aggregate demand from AD, to AD₂. As a classical economist from Langoria, you explain that the shift in aggregate demand creates You also explain that will be affected in the short run. You note that such a gap leads to an unemployment rate that is to .As wages change, the explain that in the long run, the natural unemployment rate. This means curve shifts to the will be affected. that wages until Real GDP equals Natural Real GDP. Finally, you are certain

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not?
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.
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. AS 110 X AD LRAS 24 26 OUTPUT (Trillions of dollars) PRICE LEVEL 150 130 70 50 20 22 28 30 AD ģ AS
In the dynamic model of AD-AS in the diagram to the right, the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues policy. This will result in OA. short term interest rates higher than what would occur if no policy had been pursued. OB. unemployment rates higher than what would occur if no policy had been pursued. OC. real GDP lower than what would occur if no policy had been pursued. OD. inflation higher than what would occur if no policy had been pursued. MIDD Price level 102 100 LRAS, A 10 Real GDP B 00 LRAS AD. 10.8 11 SRAS₁ SRAS, AD₂
Prompt We have been discussing major macroeconomic concepts like the ADAS Model and Fiscal Policy. This is an opportunity to apply that knowledge to a real-world scenario. Choose one of the following scenarios and identify whether it is an example of a recessionary economy or inflationary economy. Next, analyze possible Neoclassical solutions for it. Then, analyze possible Keynesian solutions for it. What would the impact on the economy be in the short-run? Long-run? Scenario 1: An increase in the unemployment rate to 7.4% has occurred. Inflation has increased causing a decline in consumer spending. Exports have declined by more than $4 billion. This has caused a decrease in GDP by 3.7%. Scenario 2: An increase in consumer and government spending has occurred. This has increased GDP by 4.4%. Currently, inflation rate has increased to 1.6%. Unemployment has remained at 5.5%. Scenario 3: An increase in the stock market by 26.5% has occurred. Companies are stockpiling the earnings…
Draw and properly label an AD-AS model to show Keynesian, intermediate, and neoclassical zones. Then, briefly explain the levels of unemployment, inflation and real GDP in each zone, and also confirm whether all three goals of a macro economy are being achieved in each zone. 2. Draw and properly label the AD-AS graphs or one AD-AS graph to show recessionary and inflationary gaps. Then, discuss in detail how Keynesians suggest that recessionary and inflationary gaps be closed. 3. Draw and properly label AD-AS graphs or one AD-AS graph to show recessionary and inflationary gaps. Then, discuss in detail how neoclassicals suggest that recessionary and inflationary gaps be closed.
In the Keynesian framework, which of the following events might cause a recession/inflation. Explain using the aggregate demand/aggregate supply. I only need the type of examples that go with the question though (Examples are crucial please!) d. The interest rate rises e. The good imported from a major trading partner becomes much less expensive
Consider the neo-classical approach to macroeconomics. Given there is a recessionary period, that theory suggests that, given some time ... Group of answer choices a. The AD line will shift right b. The AS line will shift left c. The AD line will shift left d. The AS line will shift right
Consider the Keynesian Efficiency Wage Model. a. Draw the effort curve as it was discussed in class and explain the shape. b. Explain and show graphically how firms set real wages in the Keynesian Efficiency Wage model? c. What are the implications for the full-employment level of employment Ñ and the level of unemployment u? d. Explain why firms hesitate to lower wages even if the level of unemployment is high, e.g., during recessions.
Please refer to the diagram below representing a hypothetical economy. In this case, AD1 represents a "before" curve and AD2 represents an "after' curve. Imagine that you have lived through this scenario. What have you likely observed? Prices O Prices are higher. SRAS1 O All the above. AD1 O The economy is in recession. O Unemployment has increased. RGDP AD2
I is economy IS In a recessIonary yap wrieı ure aciuai GUP IS Delow pouu DIIIIUI. b. Explain why wages rise when output is greater than potential but fall when output is less than potential. When there is a recessionary gap, if there is no intervention in the economy the level of actual unemployment will rise above the natural level of unemployment in the economy. Thus, there will be more competition among workers to find a job, which will put downward pressure on the level of wages. 1- c. For each situation, fill in the table by identifying whether the AS curve shifts up, down, or is stationary. Real GDP Rate of Shift of 760 770 780 7E0o a10 s20 B30o 840 B50 Situation (billions Wage of dollars) Change AS Curve A 760 3.0 % shifts down B 780 1.5 % shifts down 800 0.0 % is stationary D 820 1.0 % shifts up 845 2.0 % shifts up Level of GDP d. Use the multipoint drawing tool to plot and label the Phillips curve on a scale diagram for this economy. Use all and only the points provided in the…
Assume the labour market is in equilibrium initially. How would each of the following shock affect the equilibrium real wage? Explain briefly in both words and graphs. a. An increase in expected future real wage. b. A large number of immigrants enter the country.