PRIN.OF ECON.ACCESS CODE
2nd Edition
ISBN: 9780393691757
Author: Mateer
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Chapter 18, Problem 3QFR
To determine
To explain:
The solution to asymmetric information problem for moral hazard, adverse selection and principal agent problem.
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Click on the link to study the Economics in the News. Then answer the following questions.
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3. Use the AS-AD model to show the changes in aggregate demand and aggregate supply that occurred in
2016 and 2017 that brought the economy to its situation in mid-2017.
The graph shows the U.S. economy in the second quarter of 2016.
Draw and label the long-run aggregate supply curve in 2017.
Draw and label the aggregate demand curve in 2017.
Draw a point at the short-run macroeconomic equilibrium in the second quarter of 2017.
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Price level (GDP deflator, 2009=100)
LAS 16
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$16.7
100-
16.6
16.7 16.8 16.9 17.0
SAS 16
= SAS17
AD 16
17.1
17.2
17.3
Real GDP (trillions of 2009 dollars)
>>> Draw only the objects specified in the question.
LV
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Price level (GDP deflator, 2009=100)
Fed Raises Rates As Job Gains, Firming Inflation Stoke Confidence
The U.S. Federal Reserve raised interest rates on Wednesday. The rate rise was the second in three months.
This second rise comes in an economy that is growing faster and creating jobs at a more rapid pace. These
gains are accompanied by a rising inflation rate.
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Source: Reuters, March 15, 2017
Describe the process by which the Fed's action reported in the news clip flows through the economy.
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LAS
SAS
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When the Fed raises the interest rate,
A. aggregate demand decreases and short-run aggregate supply increases, and the price level falls
B. aggregate demand increases and real GDP increases
C. aggregate demand decreases and the price level falls
D. short-run aggregate supply increases and the price level falls
The graph shows the long-run aggregate supply curve and the short-run aggregate supply curve.
Draw the AD curve to illustrate the state of the economy…
Price level (GDP deflator, 2009=100)
Millennials Are Starting to Spend More
Millennials, who spend an average of $85 a day, are expected to spend at a higher rate in the next fifteen years.
Only 37 percent of Americans report higher spending today than a year ago, while 42 percent of millennials say
they are spending more. Millennials are spending more on rent or mortgages and leisure activities than they
were spending a year ago.
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Source: Business Journal, May 25, 2016
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Describe the macroeconomic equilibrium after the change in spending by millennials.
If the economy had been at a below full-employment equilibrium, then the economy will
A. move to an above full-employment equilibrium with real GDP less than potential GDP
B. move to a full-employment equilibrium as short-run aggregate supply increases at the same time
'C. move to a full-employment equilibrium and equilibrium real GDP equals potential GDP
D. remain stuck in a below full-employment equilibrium
If the economy…
Chapter 18 Solutions
PRIN.OF ECON.ACCESS CODE
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