This economy has a short-term equilibrium at point A. In response to gradually falling inflation, this economy will eventually move from its short-run equilibrium to its ong-run equilibrium. Graphically, this would be seen as nichtu
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- Refer to the accompanying figure. LRAS Inflation a A 0, y' Output O O An economy is currently in long-run equilibrium at point B, at an inflation rate of m, which is too high to sustain economic growth. If an anti-inflationary policy is enacted, the economy will be in short-run equilibrium at point creating gap. O SRAS O SRAS AD' AD A; an expansionary A; a recessionary D; a recessionary D; an expansionaryIn the diagram, the economy has Aggregate price level LRAS SRAS, P, Aggregate Demand Yp Y, Real GDP An inflationary gap, so in the long run wages will fall, causing AD curve ti shift to the left. An inflationary gap, so in the long run wages will rise, causing the SRAS curve to shift to the left. O A recessionary gap, so in the long run wages will fall, causing the AD curve to shift to the left. O A recessionary gap, so in the long run wages will fall, causing the SRAS curve to shift to the right.The economy begins in longcrun equilibrium. Thenone day, the president appoints a new chair of theFederal Reserve. 11\is new chainnan is well known forher view that inflation is not a major problcn1 for aneconomy.a. How would this news affect the price level thatpeople would expect to prevail?b. How would this change in the expected pricelevel affect the nonlinal wage that workers andfmn.s agree to in their new labor contracts?c. How would this change in the nonlinal wageaffect the profitability of producing goods andservia,s at any given price level?d. How docs this change in profitability affect theshort-run aggregate-supply curve?e. ff aggregate demand is held constant, how docsthis sllift in the aggregate-supply curve affect theprice level and the quantity of output produced?f. Do you think this Fed chainnan was a goodappointment?
- Refer to the figure below. The aggregate supply curve shifting from AS1 to AS2 will cause Price level РА P2 P₁ Po — O cost-push inflation Ohyperinflation deflation A O demand-pull inflation B Y2 Y₁ Yo Aggregate output AS2 AS₁ ASO AD₁ YBased on the given figure, the economy is initially in long-run equilibrium at point A. If there is a favorable supply shock that increases potential output and shifts the long- run aggregate supply curve from LRAS to LRAS', then there is initially gap and the short-run aggregate supply curve will Inflation P 24 A B LRAS LRAS D E Y* Output Y' SRAS' SRAS SRAS AD a. an expansionary: eventually shift to SRAS" b. an expansionary; eventually shift to SRAS' c. a recessionary; eventually shift to SRAS' d. a recessionary; eventually shift to SRAS"Question 32 Assume the economy is in short-run macro-equilibrium at E1. If the economy is allowed to self-correct on its own then: Price Level LRAS SRAS El P1 AD Real GDP Y1 Yp Da the aggregate demand curve shifts right, leading to demand-pull inflation and growth in the economy b) the short-run aggregate supply curve shifts left, leading to cost-push inflation and a decrease in real GDP Og the short-run aggregate supply curve shifts right, leading to deflation and an increase in real GDP O d) the aggregate demand curve shifts left, leading to deflation and a decrease in real GDP
- QUESTION 10 OB LRAS * Oc O None of the above. SRAS AD In the graph above, an economy moves from point A to B after being hit by a shock, if the Central Bank takes action to keep the unemployment rate at its natural level, where will the economy move to? OA Real GDPFor each of the three theories for the upward slopeof the short-run aggregate-supply curve, carefullyexplain the following:a. how the economy recovers from a recession andreturns to its long-run equilibrium without anypolicy interventionb. what determines the speed of that recoveryK How does expected inflation occur? Use the graph to answer this question. Draw the AD curve when it is correctly expected that the inflation rate will be 15 percent a year. Label it. Draw the SAS curve when a change to the money wage rate occurs that correctly anticipates the increase in aggregate demand. Label it. Draw a point at the new equilibrium. As we move up along the LAS curve, the O A. real wage rate is increasing OB. real wage rate is decreasing OC. real wage rate is constant O D. money wage rate is constant 130- 120+ 110- 100- Price level (GDP deflator, 2007 = 100) LAS 90- 100 SAS 1200 AD 800 1000 1050 1100 1150 1200 1250 1300 1350 1400 Real GDP (billions of 2007 dollars) >>> Draw only the objects specified in the question.
- Illustrate and interpretthe short-run and longrun effects of temporary and permanentsupply shocksexplain the likely effects of U.S boom on the demand for canadian exports.what woukd be the effect of canadian aggregate demand?suppose the bank of canada viewed its monetary policy as being appropriate for keeping gdp of canada close to potential gdp . what would you hen predict to be the central bank's response to foriegn boom in U.SSuppose an economy is in long-run equilibrium.a. Use the model of aggregate demand andaggregate supply to illustrate the initialequilibrium (call it point A). Be sure to includeboth short-run aggregate supply and long-runaggregate supply.b. The central bank raises the money supply by5 percent. Use your diagram to show whathappens to output and the price level as theeconomy moves from the initial equilibrium to thenew short-run equilibrium (call it point B).c. Now show the new long-run equilibrium (call itpoint C). What causes the economy to move frompoint B to point C?d. According to the sticky-wage theory of aggregatesupply, how do nominal wages at point Acompare with nominal wages at point B? How donominal wages at point A compare with nominalwages at point C?e. According to the sticky-wage theory of aggregatesupply, how do real wages at point A comparewith real wages at point B? How do real wages atpoint A compare with real wages at point C?f. Judging by the impact of the money…