PRINCIPLES OF MACROECONOMICS (LL)W/ACC.
7th Edition
ISBN: 9781264088980
Author: Frank
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 13.3CC
To determine
Determine the actual
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
6. Aggregate demand, aggregate supply, and the Phillips curve
In the year 2027, aggregate demand and aggregate supply in the imaginary country of Daisen-Oki are represented by the curves AD 2027 and AS on
the following graph. The price level is currently 102. The graph also shows two potential outcomes for 2028. The first possible aggregate demand
curve is given by the curve labeled ADA curve, resulting in the outcome given by point A. The second possible aggregate demand curve is given by
the curve labeled ADB, resulting in the outcome given by point B.
PRICE LEVEL
108
107
106
105
104
103
102
101
100
0
AD
2
2027
A
4
B
AS
AD
6 8 10
OUTPUT (Trillions of dollars)
12
AD
B
A
14
16
?
If the natural rate of unemployment is 5.0 percent, the current unemployment rate is 7.3 percent, and the current GDP is 6 billion,
according to Okun's law, the economy's potential output (in billion dollars, rounded to two decimal points) is:
PRICE LEVEL (CPI)
The following graph represents the short-run aggregate supply curve (SRAS) based on an expected price level of 150. The economy's full-
employment output level is $9 trillion.
Major unions across the country have recently negotiated three-year wage contracts with employers. The wage contracts are based on an expected
price level of 150, but the actual price level turns out to be 100. Show the short-run effect of the unexpectedly low price level by dragging the curve or
moving the point to the appropriate position.
300
SRAS[150]
250
SRAS[150]
200
150
100
50
0 1
0
3
6
9
12
15
18
REAL GDP (Trillions of dollars)
?
Interpret the change you drew on the previous graph by filling in the blanks in the following paragraph:
The lower-than-expected price level causes firms to earn
profit than they expected on each unit of output they produce, and, therefore, they
than workers and firms
their production level. At the same time, the real value of wages and other resource prices is…
Chapter 13 Solutions
PRINCIPLES OF MACROECONOMICS (LL)W/ACC.
Knowledge Booster
Similar questions
- == Assume that Co = 40, G = 220, T = 120, I = 150, X = 44, Z = M = 54, b = mpc = .75 and t =.25, the actual unemployment rate = 5.7%, and the natural unemployment rate is 5.1%. A one dollar increase in G will cause Y to increase by dollars. $2.439 $2.392 $2.305 $2.286 $2.253arrow_forwardConsider a one-sided search model of unemployment we developed in class. In class discussion we never mentioned how unemployment insurance benefit, b, is financed. For this question, you are going to incorporate it to the model. Let's assume that in order to finance the unemployment insurance benefit, b, the government imposes lump-sum tax, T, on each employed worker. Assuming that the economy is in a long-run steady-state equilibrium, the total amount that needs to be paid out to unemployed workers is bU, where as usual, U repre- sents the fraction of unemployed. The total amount of tax collected (which we can interpret as an unemployment insurance premium) from employed workers is (1U)T. The government runs balanced budget, hence, bU = (1 – U)T. In this new setting, please show the effect of an increase in unemployment in- surance benefits, b, on reservation wage, w*, and on the long-run unemployment rate, U. Using graphs clearly demonstrate how the behavior of this model is…arrow_forwardAfter staying virtually flat for about a year and a half, the average lending rate of banks has started to show signs of decline in April after the Bank of Ghana reduced the monetary policy rate the month before. The Summary of Economic and Financial Data (May 2020) published by the Bank of Ghana has shown that average lending rate has finally moved out of its comfort zone to a step downward. Prior to recording 22.38 percent in April, the average lending rate has since the past 17 months (December 2018) not come below 23%.How would banks benefit when interest rates decrease?arrow_forward
- question in photoarrow_forwardHow does the increase in interest rates raise the chances of a recession? How can we expect the increase in interest rates to affect the consumption of the poorest 20% and richest 20% of households?arrow_forward2. The connection between macroeconomics and microeconomics While economists measure unemployment at the macroeconomic level, microeconomic forces are often responsible for this macro aggregate. In other words, the tie between microeconomics and macroeconomics is inevitable when discussing the level of unemployment in an economy. Suppose the following graph represents the market for unskilled labor in a fictional economy. These workers typically represent the young, inexperienced, or uneducated part of the labor force and are therefore most effected by changes in the unemployment rate. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. WAGE (Dollars per hour) 15 12 0 0 400 Labor Supply Labor Demand 800 200 QUANTITY (Thousands of workers) 600 1000 Graph Input Tool Labor Market…arrow_forward
- An economy has an unemployment rate of 11% and real GDP grows by 2.5% annually. A treasury official says next year's expected growth rate of 4% is ecpected to bring down the enemployment rate to 8% within one year. However, an economists disagrees as it is non consistent with macroeconomic research. -who is correct? the treasury official or the economist and why?arrow_forwardI need some help figuring out how to draw these graphs. Thank you Suppose the economy of Hawkland is initially at full employment. Currently real GDP is $20 trillion, the price level is 120, the money wage is $36/hour, the full employment quantity of labor is 300 billion hours per year, and the current unemployment rate is 6% Draw a fully labeled graph depicting the aggregate labor market in Hawkland.Be sure to label all axes and include numerical values for variables on the axeswhere relevant. Provide a brief explanation to the side and show any necessary calculations.Label any relevant curves with a zero subscript (ex: LS0) and use a zero in a circle to clearly label the initial equilibrium. Part 2- Draw a fully labeled graph depicting the aggregate goods and services market in Hawkland.Be sure to label all axes and include numerical values for variables on the axes where relevant. Provide a brief explanation to the side and show any necessary calculations.Label any relevant curves…arrow_forwardHowever, the labor market is a derivative of the goods market in the Keynesian theory (“principle of effective demand”). Therefore, unemployment is explained by the lack of demand in the goods market. According to the Keynesian theory, what would happen to the unemployment rate if real wages fall? How should unemployment be reduced?arrow_forward
- The unemployment rate is 11.5%, the natural rate of unemployment is 7.5%, and the potential rate of GDP growth is 2.25%. If the coefficient of Okun's law is 0.4%, real GDP must grow at a rate of % in order to reduce the unemployment rate to the natural unemployment rate. (Enter your response rounded to two decimal places.)arrow_forwardIf the unemployment rate is approximately 6.1% then it must be true that there is Unemployed = 5 million persons & Employed = 150 million persons Unemployed = 10 million persons & Employed = 155 million persons Unemployed = 2.5 million persons & Employed = 75 million persons Unemployed = 15 million persons & Employed = 175 million personsarrow_forwardThe figure below is a part of the AD-AS model as a description of the current situation of an economy. PA=$10 P YA=4000 Y a) Find the short-run equilibrium (i.e. the real output and the price level thereof) of this economy. b) If the natural level of output is 3500, which one will be higher, the unemployment rate at point A, or the natural unemployment rate? Explain. c) Give two reasons as to why the short-run aggregate supply is upward sloping. d) Suppose the government takes no action about the situation indicated above. Explain, with the help of a figure properly labeled, what will happen in this economy in the long run. e) Describe the two kinds of macroeconomic policies that can be used in the situation described before part c). Indicate clearly in your description whether each policy is to the aggregate demand or aggregate supply or Further, give reason(s) as to why the government may want to use these policies rather than doing nothing.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
