The figure to the right illustrates the dynamic AD-AS model. Suppose the economy is in equilibrium in the first period at point (A). In the second period, the economy reaches point (B). What policy would the federal government likely pursue in order to move AD₂ to AD2, policy and reach equilibrium (point C) in the second period? OA. Increase government spending OB. Open market purchase of government securities OC. Increase taxes OD. All of the above 103 102 100 LRAS₁ LRAS₂ SRAS₁ SRAS₂ AD₁ 14 14.34.4 Real GDP ($trillions) AD2, (policy) AD₂

The figure to the right illustrates the dynamic AD-AS model. Suppose the economy is in equilibrium in the first period at point (A). In the second period, the economy reaches point (B). What policy would the federal government likely pursue in order to move AD₂ to AD2, policy and reach equilibrium (point C) in the second period? OA. Increase government spending OB. Open market purchase of government securities OC. Increase taxes OD. All of the above 103 102 100 LRAS₁ LRAS₂ SRAS₁ SRAS₂ AD₁ 14 14.34.4 Real GDP ($trillions) AD2, (policy) AD₂

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider the AD-AS model below. The economy is in long-run equilibrium at point in period 1. Consider an increase in government spending. If the public has rational expectations, the economy will move to point If the public has adaptive expectations, the economy will move to point . In period 3 the AS will pass through point In the long run the AS will move to point
2) In 2008, financial frictions increased. Demonstrate the effect on AD using the MP and IS curves.
Please draw a graph including everything below: Draw a fully labeled AS-AD model (include the AD, SRAS, and LRAS curves) to illustrate a recessionary gap. Label the Price Level (PL1) and GDP (Y1). Then draw a new AD or SRAS curve to illustrate the intended impact the stimulus bills. Label the new Price Level (PL1) and GDP (Y2).
Which of the following would likely cause a downward parallel shift in the AE curve and a leftward shift in the AD curve? a) a reduction in government purchases b) an decrease in the MPC c) an increase in the price level O d) an increase in the business confidence of firms e) a decrease in the price level
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…
Suppose housing constitutes 45% of the typical basket of goods for a typical consumer, education constitutes 3%, and all other goods make up the remaining 52%. Assume the price of housing rises by 4%, the price of education falls by 10%, and prices remain constant for all other goods. Based on the information given, we can definitely say Select one: a.because the price of education fell by more than the price of housing rose, the consumer price index (CPI) must have decreased. b.the CPI is higher than in the previous year. c.if consumers get a 4% pay raise, they are worse off in terms of their real income compared to inflation as measured the CPI. d.because housing is a luxury (as is education), consumers are certainly no worse off in terms of their real wages as measured by the CPI. e.the CPI is unchanged from the previous year.
Extra Credit The economy of the country Keinesia is heavily dependent on imported oil. Due to a crisis in the Middle East, the oil price has sharply increased. 1. What do you expect to happen to the equilibrium output and prices? Use the AD-AS model to illustrate it. 2. You are the economic adviser to the president of Keinesia. a. Would you advise him/her to implement Fiscal Policy? b. What type of Fiscal Policy would you recommend? c. Illustrate the effect of the Fiscal Policy on the equilibrium output and prices? Use the AD- AS model in part (a) to illustrate it.
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?
of The economy of Langoria is currently in a state of long-run equilibrium in which the economy is producing at its Natural Real GDP. The level of Real GDP is currently 3 trillion dollars, and the price level is 130. 100 PRICE LEVEL 170 160 150 140 130 120 110 100 2 Changes in a Self-Regulating Economy AD AD₂ BRAS 1 2 3 LRAS 23
Q2
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
Consider the AD/AS model. An increase in government purchases will change equilibrium real GDP but have no impact on equilibrium price level if A. the AS curve is horizontal. OB. the simple multiplier is very small. OC. the simple multiplier is very large. OD. the AS curve slopes upward.