Macroeconomics (Book Only)
12th Edition
ISBN: 9781285738314
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 16, Problem 15QP
To determine
Whether the economy is in long run or not.
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An economy's aggregate demand curve (the relationship between short-run equilibrium output and inflation) is described by the equation:Y = 15,000 - 12,000π, where π is the inflation rate. Initially, the inflation rate is 2 percent or π = 0.02. Potential output Yp equals 14,640.Note: Keep as much precision as possible during your calculations. Your final answer for inflation should be accurate to at least two decimal places and output should be accurate to the nearest whole number.a) Find inflation and output in short-run equilibrium.
Inflation : 0%Output : $0
b) Find inflation and output in long-run equilibrium.
Inflation : 0%Output : $0
Suppose that your economy is in long run equilibrium. The aggregate demand and aggregate supply in the market is represented by the following functions: AD:= 360 – 4Y AS: P = 20 + 4Y Something occurs in the economy and the aggregate demand changes to: AD: P = 400 – 4Y Calculate the inflation rate that occurs with the change in aggregate demand.
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Chapter 16 Solutions
Macroeconomics (Book Only)
Ch. 16.2 - Prob. 1STCh. 16.2 - Prob. 2STCh. 16.2 - Prob. 3STCh. 16.3 - Prob. 1STCh. 16.3 - Prob. 2STCh. 16.3 - Prob. 3STCh. 16.5 - Prob. 1STCh. 16.5 - Prob. 2STCh. 16 - Prob. 1VQPCh. 16 - Prob. 2VQP
Ch. 16 - Prob. 3VQPCh. 16 - Prob. 4VQPCh. 16 - Prob. 5VQPCh. 16 - Prob. 1QPCh. 16 - Prob. 2QPCh. 16 - Prob. 3QPCh. 16 - Prob. 4QPCh. 16 - Prob. 5QPCh. 16 - Prob. 6QPCh. 16 - Prob. 7QPCh. 16 - Prob. 8QPCh. 16 - Prob. 9QPCh. 16 - Prob. 10QPCh. 16 - Prob. 11QPCh. 16 - Prob. 12QPCh. 16 - Prob. 13QPCh. 16 - Prob. 14QPCh. 16 - Prob. 15QPCh. 16 - Prob. 1WNGCh. 16 - Prob. 2WNGCh. 16 - Prob. 3WNGCh. 16 - Prob. 4WNGCh. 16 - Prob. 5WNG
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- Q2. If output falls, what is likely to happen to inflation and employment?arrow_forwardAccording to Friedman, in which of the following situations is the economy in long-run equilibrium? a. The expected economic growth rate is 3 percent and the actual inflation rate is 3 percent. b. The average inflation rate over the past five years is 2 percent and the expected inflation rate is 2 percent. c. The expected inflation rate is 3 percent and the actual inflation rate is 3 percent. d. The expected economic growth rate is 2 percent and the expected inflation rate is 2 percent.arrow_forwardPlease note I only need help with Part 4 and 5. I have answers for the other parts. Thank you so much for your time and effort! Figure 2: Keynes’s AD-AS Model (Image normally goes here) Part 1:Changes in which factors could cause aggregate demand to shift from AD to AD1? What could happen to the unemployment rate? What could happen to the inflation rate? Part 2: The Keynesian AD-AS model describes what happens with price levels when aggregate demand increases. Could you find any evidence from the last ten-fifteen years that might support AD-AS model descriptions of demand-pull inflation, cost-push inflation, and recession? For example, you could find data on the GDP’s of any two countries from 2000 to 2017 to support your findings. Please note the followong for the next 3 parts of this. In macroeconomics, the immediate short run is known as a length of time when both input prices and output prices are fixed. In the short-run, input prices are fixed but output prices are variable. In…arrow_forward
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- 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?arrow_forwardThe following table describes the aggregate demand curve, where real GDP is expressed as the percent deviation from potential GDP and inflation is expressed as a percentage: Real GDP 2.0 1.0 0.0 -1.0 -2.0 Inflation 19 3.0 4.0 5.0 7.0 9.0 Due to a price shock, inflation increases by 2%. In the long run, what will real GDP be (expressed as the percent deviation from potential GDP)?arrow_forwardDescribe how changes in expected inflation impact an economy in the wake of a temporary negative supply shock.arrow_forward
- In the Keynesian framework, which of the following events might cause inflation? Group of answer choices interest rates rise none of the above exports decrease a large increase in the price of the homes people own.arrow_forwardIf the marginal propensity to consume is zero, a temporary tax increase leads to a small decreasein inflation in the short run but a large decrease in inflation in the long run.Answer True or False. Remember to include your explanationarrow_forwardInitially, the economy is operating at the natural rate of 4% unemployment. The anticipated rate of inflation is 4%, and the actual inflation rate is also 4%. According to adaptive expectations, inflation run. In the long run, the unemployment rate will be and the unemployment rate 4%. Suppose that in the next period, there is an increase in aggregate demand that causes an unexpected rise in the inflation rate to 6%. According to adaptive expectations, inflation run. In the long run, the unemployment rate will be and the unemployment rate 4%. Suppose that in the next period, there is an increase in aggregate demand that causes an unexpected rise in the inflation rate to 9%. According to adaptive expectations, inflation unemployment rate . In the long run, the unemployment rate will be . As a result, real wages 4%. 4% in the short 4% in the short workers are hired, and thearrow_forward
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