Bundle: Principles of Macroeconomics, Loose-Leaf Version, 7th + LMS Integrated Aplia, 1 term Printed Access Card
7th Edition
ISBN: 9781305242500
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 21, Problem 2PA
Subpart (a):
To determine
Impact of expansionary policy on the interest rate and the aggregate demand and supply model.
Subpart (b):
To determine
Impact of expansionary policy on the interest rate and the aggregate demand and supply model.
Subpart (c):
To determine
Impact of expansionary policy on the interest rate and the aggregate demand and supply model.
Subpart (d):
To determine
Impact of expansionary policy on the interest rate and the aggregate demand and supply model.
Subpart (e):
To determine
Impact of expansionary policy on the interest rate and the aggregate demand and supply model.
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Question 7. Using the models learned in class, graphically illustrate and explain the impact of the
following policy and explain your answer.
Suppose the Bank of Canada reduces the money supply by 5%.
a. What happens to the aggregate demand curves?
b. What happens to the level of output and the price level in the short run and in the long
run?
c. What happens to the real interested rate in the short run and in the long run?
Suppose an economy is in long-run equilibrium.a.Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium(call it point A).be sure to include both short-run and long-run aggregate supply.b.The central bank raise the money supply by 5 percent.Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium.(call it point B)c.Now slow the new long-run equilibrium(call it point C).what causes the economy to move from point B to point C?d.According to the sticky-wage theory of aggregate supply,how do nominal wages at point A compare to nominal wages at point B?How do nominal wages at point A compare to nominal wages at point C?e.According to the sticky wage theory of aggregate supply,how do real wages at point A compare to the real wages at point B?How do real wages at pointA compare to the real wages at point C?f.Judging by the impact of the money supply on nominal and real…
3. Suppose an economy is in long run equilibrium.
3.1 use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). Be sure to include both short run and long run aggregate supply.
3.2 The central bank raises the money supply by 5 percent. Use your diagram to show that what happen to output and the price level as the economy moves from the initial to the new short run equilibrium (Call it point B).
3.3 Now show the new long-run equilibrium (call it point C). what cause the economy to move from point B to point C?
Chapter 21 Solutions
Bundle: Principles of Macroeconomics, Loose-Leaf Version, 7th + LMS Integrated Aplia, 1 term Printed Access Card
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- Suppose an economy is in long-run equilibrium. a. Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). Be sure to include both short-run and long-run aggregate supply. b. The central bank raises the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium (call it point B). c. Now show the new long-run equilibrium (call it point C). What causes the economy to move from point B to point C? d. According to the sticky-wage theory of aggregate supply, how do nominal wages at point A compare to nominal wages at point B? How do nominal wages at point A compare to nominal wages at point C? e. According to the sticky-wage theory of aggregate supply, how do real wages at point A compare to real wages at point B? How do real wages at point A compare to real wages at point C? f. Judging by the impact of the money supply on nominal…arrow_forward2. Suppose an economy is in long run equilibrium. 2.1 use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). if GDP is below a potential GDP. Be sure to include both short run and long run aggregate supply. 2.2 The central bank raises the money supply by 5 percent. Use your diagram to show that what happen to output and the price level as the economy moves from the initial to the new short run equilibrium (Call it point B). 2.3 Now show the new long-run equilibrium (call it point C). what cause the economy to move from point B to point C?arrow_forwardSolve the attachment.arrow_forward
- Money Supply Suppose an economy is in long-run equilibrium. The central bank reduces the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. Now adjust the graph to show the new long-run equilibrium. What causes the economy to move from its short-run equilibrium to its long-run equilibrium? 1. The government increases spending to increase aggregate demand. 2. The government increases taxes to curb aggregate demand. 3. Nominal wages, prices, and perceptions adjust upward to this new price level. 4. Nominal wages, prices, and perceptions adjust downward to this new price level. Which of the following is true according to the sticky-wage theory of aggregate supply as a result of the decrease in the money supply? Check all that apply. 1. Nominal wages at the initial equilibrium are equal to nominal wages at the new short-run…arrow_forwardWhen the Federal Reserve buys government securities from a bank, the money supply ________ and interest rates ________. increases; rise decreases; rise decreases; fall increases; fallarrow_forwardI keep getting the graph wrong, this is my last attempt to try to get most of the problem rightarrow_forward
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