Use the AS-AD model where the central bank follows an interest rate rule with an inflation target, π Tt = in + α(πt-πT) to analyse the impact of a large increase in the relative price of oil, where oil is an input in production (along with labour). Assume that the economy begins in the medium run equilibrium. (IF YOU CAN ONLY ANSWER ONE PLEASE ANSWER Q2 1) Explain why a relative oil price increase has the same qualitative effect on the economy as a rise in the mark-up, m, on marginal cost by firms 2) Explain what would immediately happen to the AS curve in response to the oil price increase.

Use the AS-AD model where the central bank follows an interest rate rule with an inflation target, π Tt = in + α(πt-πT) to analyse the impact of a large increase in the relative price of oil, where oil is an input in production (along with labour). Assume that the economy begins in the medium run equilibrium. (IF YOU CAN ONLY ANSWER ONE PLEASE ANSWER Q2 1) Explain why a relative oil price increase has the same qualitative effect on the economy as a rise in the mark-up, m, on marginal cost by firms 2) Explain what would immediately happen to the AS curve in response to the oil price increase.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 2TY

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Assume that an economy operates according to the sticky-wage model. The nominal wagewas set to make labor supply and labor demand equal when the expected price levelequaled 120 (as measured by the consumer price index).a. Use a graph of the labor market to illustrate what happens to the quantity oflabor employed if the actual price level over the time period when wages arestuck equals 110.b. Use a graph of the production function to illustrate how the quantity of outputproduced changes if the actual price level equals 110 when the expected pricelevel is 120.c. Given the unexpectedly low price level, will this economy be operating above,below, or at the natural rate?
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Please help me with this. Thank you! Indicate what to you is our most urgent or relevant macroeconomic goal and why. And, how will this affect the AD-AS Model in the short-run, if applicable?
Suppose, initially the Australian economy is atfull employment(in other words the economy is atthe potentialGDP). Using AD-AS model, explain how would each of the following events aectthe economy both in theimmediate and in the long term.a) A slowdown in China’s economic growth due to the sub-prime crisis in the US.b) Union wage settlements push the wage rate up.c) An increase in consumer confidence.
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Use the Aggregate Supply and Aggregate Demand Model below to answer thequestions that follow Examine the influence of government expenditure on investment in a nation.Use Jot Inc. Ltd a multinational construction company in which you are theChief Exec of the firm that that is highly diversified and receives funds toconstruct highways and other government-funded projects. Also, explain thefactors that cause the Aggregate Demand curve to be downward sloping leftto right
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