Answered: Using the AD-AS model, discuss the…

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Using the AD-AS model, discuss the money neutrality in the short-run and in the long-run.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter32: Macroeconomic Policy Around The World

Section: Chapter Questions

Problem 9SCQ: Show, using the AD/AS model, how governments can use monetary policy to decrease the price level.

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long-run.

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Show, using the AD/AS model, how governments can use monetary policy to decrease the price level.
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c, d, e
ון רבSuip Reset the graph and click on the blue square to apply a negative supply shock the the economy. Then adjust the movable point to view the effects of potential policy responses to the negative supply shock. Use what you observe to answer the questions that follow. a. In response to the effects of a negative supply shock, policymakers decide to decrease aggregate demand. What are the effects of this choice? O an increase in aggregate output, and an increase in the aggregate price level an decrease in aggregate output, and an decrease in the aggregate price level an increase in aggregate output, and an decrease in the aggregate price level an decrease in aggregate output, and an increase in the aggregate price level b. What are the overall tradeoffs with regard to this choice? Policymakers have chosen to fight inflation by increasing AD, but this further reduces aggregate output and makes the recession worse. Policymakers have chosen to fight inflation by decreasing AD, but this…
In the Keynesian theory, money wages do not fall response to a decrease in aggregate demand . a. true b. false
Consider the AD-AS model in the following picture. If the original level of aggregate demand is Ef, what will be the effect of an expansionary monetary policy that shifts aggregate demand from ADf to ADI? Price Pf Pr Fig11a Er C. Yr Real GDP LRAS ADr Ef I don't know. SRAS Ei ADf Yf Yi a. stagflation b. inflation and unemployment ADi d. inflation, but little employment
Suppose we start with the US economy in a position of long run equilibrium, at potential output e! and inflation at the target level The Lehman Brothers bankruptcy in 2008 caused shockwaves through the entire financial system of United States disrupting financial markets and dampening business confidence. a. Use a graph of the AD-AS model to explain the effect of the Lehman Brothers bankruptcy in the short-run on Real GDP, inflation and unemployment. b. In the face of this shock how does divine coincidence simplify the job of policy makers?
Refer to the diagram to the right. Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy. Using the static AD- AS model, this would be depicted as a movement from OA. C to B. OB. C to D. OC. B to C. OD. A to B. OE. A to E. Price leve A LRAS B D E C Real GDP AD ₁ SRAS AD 3 AD 2
Is the way that NBER measures a recession fair and accurate? Please explain
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…
What causes the lags in the effect of monetary and fiscal policies on aggregatedemand? What are the implications of these lags for the debate over active versuspassive policy?
Refer to the figure below. Which one of the following statements is FALSE (FIGURE 6)? Figure 6 Inflation rate (7) Unemployment E₂ AD Y* AS Output (Y)