) Using the Aggregate Demand-Aggregate Supply (AD-AS) model, discuss how the bove information impacts the model (draw the AD-AS diagram) and equilibrium levels f prices (P) and output (Y). Identify which variables, curves, and equilibrium points are mpacted. Clearly label all curves, axes, and equilibrium points in the short run and long un.
) Using the Aggregate Demand-Aggregate Supply (AD-AS) model, discuss how the bove information impacts the model (draw the AD-AS diagram) and equilibrium levels f prices (P) and output (Y). Identify which variables, curves, and equilibrium points are mpacted. Clearly label all curves, axes, and equilibrium points in the short run and long un.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The current pandemic has led to significant levels of unemployment, hitting a high of
14.7% in April. As a result, millions of people lost their jobs and were on unemployment
insurance.
a) Using the Aggregate Demand-Aggregate Supply (AD-AS) model, discuss how the
above information impacts the model (draw the AD-AS diagram) and equilibrium levels
of prices (P) and output (Y). Identify which variables, curves, and equilibrium points are
impacted. Clearly label all curves, axes, and equilibrium points in the short run and long
run.
b) The Federal Reserve observes the negative economic impact of the pandemic and
wants to stabilize the economy. Using the liquidity preference model, what monetary
policy actions should the Federal Reserve use to stabilize the economy? Clearly label
all curves, axes, and equilibrium points of interest. Discuss how this stabilization policy
impacts the AD-AS model. What are the long-run impacts on prices and output if the
Federal Reserve modifies the economy “too much" from their policy choice above?
c) How does your above optimal Federal Reserve monetary policy impact net capital
outflows, the real exchange rate, and net exports? Use an appropriate model to discuss
your logic.
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