Please answer all parts. Thank you ### 12. InflationThe economy begins in long-run equilibrium. Then one day, the president appoints a new Fed chair, who is well known for holding the view that inflation is not a major problem for an economy.**Note:** You will not be graded on any changes you make to the following graph, but you may use it to help you understand the scenario described.#### Explanation of the Graph:The graph displays:- The Long-Run Aggregate Supply (LRAS) curve which is a vertical line indicating that in the long run, the quantity of output supplied is independent of the price level.- The Aggregate Demand (AD) curve is a downward sloping line indicating that as price levels decrease, the quantity of output demanded increases.- The Aggregate Supply (AS) curve is an upward sloping line indicating that as price levels increase, the quantity of output supplied increases.**Axes:**- The vertical axis represents the Price Level.- The horizontal axis represents the Quantity of Output.#### Question:Which of the following statements accurately describe what would happen as a result of this news? *(Check all that apply)*- [ ] People would expect the price level to rise.- [ ] The nominal wage that workers and firms agree to in their new labor contracts would be higher than it would be otherwise.- [ ] The profitability of producing goods and services at any given price level would increase.- [ ] The short-run aggregate-supply curve would shift to the left.**Explanation:**If aggregate demand is held constant, the shift in the aggregate-supply curve will cause the price level to [increase/decrease] and the quantity of output produced to [increase/decrease].*(Fill in the blanks as appropriate based on your understanding of the scenario.)*

Equity can be defined as the condition in which the demand for a particular item or product is…

Which of the following statements accurately describes w would happen as a result of this news? Check all that apply People would expect the price level to rise. The nominal wage that workers and firms agree to in their new labor contracts would be higher than it would be otherwise. The profitability of producing goods and services at any given price level would increase. The short-run aggregate-supply curve would shift to the left. If aggregate demand is held constant, the shift in the aggregate-supply curve will cause the price level to and the quantity of output produced to .

Which of the following statements accurately describes w would happen as a result of this news? Check all that apply People would expect the price level to rise. The nominal wage that workers and firms agree to in their new labor contracts would be higher than it would be otherwise. The profitability of producing goods and services at any given price level would increase. The short-run aggregate-supply curve would shift to the left. If aggregate demand is held constant, the shift in the aggregate-supply curve will cause the price level to and the quantity of output produced to .

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter33: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 7PA

See similar textbooks

Similar questions

Graph an economy which suffers a negative supply shock. How does this effect inflation (increase/decrease) and unemployment (increase/decrease)? What is the name for this situation? What is the relationship between unemployment and inflation as the economy heads into a recession normally? How about the relationship as the economy moves to the peak of the business cycle?
Would a monetary policy intended to bring about disinflation cause a greater increase in unemployment if workers and firms have adaptive expectations or if they have rational expectations. Briefly explain. 1. 2. Why is the credibility of the State Bank's policy announcements particularly important? 3. Why do workers, firms, banks and investors in financial markets care about the future rate of inflation? 4. Why do most economists agree that it is important to have a country's central bank to be independent of the country's central government? 5. How does an increase in interest rates affect aggregate demand? Briefly discuss how each component of aggregate demand is affected. If the State Bank believes the economy is about to fall into recession, what actions should it take? 6. 7. If the State Bank believes the inflation rate is about to increase, what actions should it take? 8. What is the main difference between M1 and M2 definitions of the money supply? 9. Explain the Consumption…
1.16 Read the following extract and answer question A dull Reserve Bank meeting may be a good thing As markets get jittery about inflation and interest rates, the Bank is a sea of calm calculation .Governor Lesetja Kganyago will see having been able to keep interest rates at 50-year lows as a vindication of past policy. Two months ago, some of SA's peers in emerging markets, namely Turkey, Russia and Brazil, already tightened policy. "If you want lower interest rates you have got to have lower inflation," Kganyago told Business Day a month ago, comments that made it clear the Bank is in no rush to raise interest rates, even though its projection model suggested that policy tightening would start in the second quarter. The view being expressed by Governor Lesetja Kganyago above are that of. a) The monetarist approach to inflation b) Cost pull inflation c) Demand push inflation d) The conflict approach
Question 1 a. Increasing prices erode the purchasing power of the dollar. It is interesting to compute what goods would have cost at some point in the past after adjusting for inflation. Go to the Federal Reserve Bank of St. Louis, FRED database website at https://research.stlouisfed.org/fred2/and find the consumer price index for all urban consumers. What would a car that cost $25,000 today have cost the year 1996? b. Many countries have central banks that are responsible for their nation’s monetary policy. Go to www.bis.org/cbanks.htm and select one of the central banks (for example, ECB, Norway). Review that bank’s Web site to determine its policies regarding application of monetary policy. How does this bank’s policies compare to those of the U.S. central bank?
“The Bank of Zambia’s Monetary Policy Committee has kept the monetary policy rate unchanged for over a year despite inflation being consistently above the 6-8% target range”. DISCUSS
1.17 Read the following extract and answer question A dull Reserve Bank meeting may be a good thing As markets get jittery about inflation and interest rates, the Bank is a sea of calm calculation .Governor Lesetja Kganyago will see having been able to keep interest rates at 50-year lows as a vindication of past policy. Two months ago, some of SA's peers in emerging markets, namely Turkey, Russia and Brazil, already tightened policy. "If you want lower interest rates you have got to have lower inflation," Kganyago told Business Day a month ago, comments that made it clear the Bank is in no rush to raise interest rates, even though its projection model suggested that policy tightening would start in the second quarter. 1.17 In order to keep the interest rates low, which of the following instruments will it use? a) Quantitative easing b) Open-market policy c) Increase government spending d) Raise taxes
2-5 Kraft and Cadbury When Kraft recently bid $16.7 billion for Cadbury, Cadbury’s market value rose, but Kraft’s market value fell by more. What does this tell you about the value-creating potential of the deal? for one of the surgeries has increased by about 10% each year since 1995, whereas the other has increased by only 2% per year. Which of the surgeries has the lower inflation rate? Why?
Inflation at lowest rate in 5 years Inflation rate (percent per year) In September, inflation in the United Kingdom fell to 1.1% a year, its lowest in 5 years. Analysts expected an inflation rate of 1.3% a year. 1.7- Source: The New York Times, October 13, 2009 With the unemployment rate at 8 percent and the natural unemployment rate at 6 percent, sketch the short-run Phillips curve and mark on your graph the point which shows the situation in September. Label the point A. 1.5- 1.3- The unemployment rate is 8 percent and the natural unemployment rate is 6 percent. 1.1- Draw a point that shows the unemployment rate and the inflation rate in September. Label it A. Draw a point that shows the natural unemployment rate and the expected inflation 0.9 rate. Label it B. 10 12 Unemployment rate (percent of labor force) Draw the short-run Phillips curve that is consistent with these data. Label it. >>> Draw only the objects specified in the question. Selected: Delete Clear none Next
Inflation at lowest rate in 5 years Inflation rate (percent per year) In September, inflation in the United Kingdom fell to 1.1% a year, its lowest in 5 years. Analysts expected an inflation rate of 1.3% a year. 1.7- Source: The New York Times, October 13, 2009 With the unemployment rate at 8 percent and the natural unemployment rate at 6 percent, sketch the short-run Phillips curve and mark on your graph the point which shows the situation in September. Label the point A. 1.5- 1.3- The unemployment rate is 8 percent and the natural unemployment rate is 6 percent. 1.1- Draw a point that shows the unemployment rate and the inflation rate in September. Label it A. 0.9+ 4 8 10 12 Draw a point that shows the natural unemployment rate and the expected Unemployment rate (percent of labor force) inflation rate. Label it B. >>> Draw only the objects specified in the question. Draw the short-run Phillips curve that is consistent with these data. Label it. of
8. The economy begins in long-run equilibrium. Then one day, the president appoints a new chairman of the Federal Reserve. This new chairman is well-known for his view that inflation is not a major problem for an economy. a. How would this news affect the price level that people would expect to prevail? b. How would this change in the expected price level affect the nominal wage that workers and firms agree to in their new labor contracts? c. How would this change in the nominal wage affect the profitability of producing goods and services at any given price level? d. How does this change in profitability affect the short-run aggregate-supply curve? e. If aggregate demand is held constant, how does this shift in the aggregate-supply curve affect the price level and the quantity of out-put produced? f. Do you think this Fed chairman was a good appointment?
What are three costs to society and/or the economy when the inflation rate increases faster than expected Edit View Insert Format Tools Table 12pt ✓ Paragraph
The AD/AS model is static. It shows a snapshot of the economy at a given point in time. Both economic growth and inflation are dynamic phenomena. Suppose economic growth is 3 per year and aggregate demand is growing at the same rate. What does the AD/AS model say the inflation rate should be?