Macroeconomics (Book Only)
12th Edition
ISBN: 9781285738314
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 8, Problem 3VQP
(a)
To determine
Illustrate the effect of increase in the interest rate.
(b)
To determine
Illustrate the effect of adverse supply shock.
(c)
To determine
Illustrate the effect of increase in wealth.
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Students have asked these similar questions
The imaginary country of Harris Island has the aggregate supply and aggregate demand curves as Table 24.3 shows.
a. Identify the (i) equilibrium basing from the AD/AS diagram attached.
b. Would you expect unemployment in this economy to be relatively high or low?
c. Would you expect concern about inflation in this economy to be relatively high or low?
d. Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Identify the new aggregate equilibrium.
e. How will the shift in AD affect the original output, price level, and employment?
How would a dramatic increase in the value of the stock market shift the AD curve? What effect would the shift have on the equilibrium level of GDP and the price level?
Suppose concerns about the size of the federal budget deficit lead the U.S. Congress to cut all funding for research and development for ten years. Assuming this has an impact on technology growth, what does the AD/AS model predict would be the likely effect on equilibrium GDP and the price level?
Chapter 8 Solutions
Macroeconomics (Book Only)
Ch. 8.2 - Prob. 1STCh. 8.2 - Prob. 2STCh. 8.2 - Prob. 3STCh. 8.3 - Prob. 1STCh. 8.3 - Prob. 2STCh. 8.3 - Prob. 3STCh. 8.5 - Prob. 1STCh. 8.5 - Prob. 2STCh. 8 - Prob. 1VQPCh. 8 - Prob. 2VQP
Ch. 8 - Prob. 3VQPCh. 8 - Prob. 4VQPCh. 8 - Prob. 5VQPCh. 8 - Prob. 1QPCh. 8 - Prob. 2QPCh. 8 - Prob. 3QPCh. 8 - Prob. 4QPCh. 8 - Prob. 5QPCh. 8 - Prob. 6QPCh. 8 - Prob. 7QPCh. 8 - Prob. 8QPCh. 8 - Prob. 9QPCh. 8 - Prob. 10QPCh. 8 - Prob. 11QPCh. 8 - Prob. 12QPCh. 8 - Prob. 13QPCh. 8 - Prob. 14QPCh. 8 - Prob. 15QPCh. 8 - Prob. 16QPCh. 8 - Prob. 17QPCh. 8 - Prob. 18QPCh. 8 - Prob. 19QPCh. 8 - Prob. 20QPCh. 8 - Prob. 1WNGCh. 8 - Prob. 2WNGCh. 8 - Prob. 3WNGCh. 8 - Prob. 4WNG
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Similar questions
- Explain the determinants of the aggregate demand (AD) and describe how the AD curve will shift when one of these determinants changes.arrow_forward10. In an AD/AS model, the point where the economy has excess capacity is called the: (A) Keynesian zone of the AS curve (B) intermediate zone of the AS curve (C) neoclassical zone of the AS curve (D) crossing point of the potential GDP linearrow_forwardRead the following excerpts. Identify whether the policy action is fiscal or monetary and expansionary or contractionary. Draw and label the change that would occur on the AD/AS graph as a result of the policy action described in each. Identify what will happen as a result of the policy to the price level, employment, and real GDP. Excerpt from President Jimmy Carter’s televised speech delivered October 24, 1978 “Good evening. I want to have a frank talk with you tonight about our most serious domestic problem. That problem is inflation. Inflation can threaten all the economic gains we’ve made, and it can stand in the way of what we want to achieve in the future. This has been a long-time threat. For the last 10 years, the annual inflation rate in the United States has averaged 6-1/2 percent. And during the three years before my inauguration, it had increased to an average of 8 percent. If inflation gets worse, several things will happen. Your purchasing power will continue to decline,…arrow_forward
- CNBC on Jan 26, 2022 reports, "Federal Reserve points to interest rate hike coming in March". Graphically show (in one graph) the short- and long-term impact of this using the AD-AS model.arrow_forwardQ1) Explain and illustrate how the interaction of the AD and SRAS curves determines the course of GDP and the price level in response to (a) rise in wage rate, (b) an increase in investment, c) reduction in government spending, d) boom in demand in neighbouring economies.arrow_forwardDraw and carefully describe a graph that utilizes the Aggregate Demand/Aggregate Supply model that would illustrate the state of the aggregate economy in the United States at the very beginning of 2020 before the start of the pandemic and the 2020 recession. Make sure that you explain your graph in your own words. You should draw your own AD/AS graph which you can then embed into your post. Your graph needs to be clearly labeled and explained in some detail. Make sure that your graph includes an aggregate demand (AD) curve, a short run aggregate supply (SRAS) curve, and a long run aggregate supply curve (LRAS, Potential GDP) curve. You should clearly label both axes of the graph.arrow_forward
- Complete the table by indicating the change in each determinant necessary to decrease aggregate demand. Change Needed to Decrease AD Wealth Taxes Expected rate of return on investment Incomes in other countriesarrow_forwardSuppose a boom in stock market prices helps make people feel wealthier. Using the model of aggregate demand and aggregate supply, identify and illustrate the curves that are affected, and which direction these curves would shift. In your own words, explain what happens to price level and real GDP and equilibrium? (Hint: Graph your own AD/AS model to answer part of the question)arrow_forwardUse the following scenario for the next two questions. Suppose that the federal government decides to forgive all current (and future) outstanding student loans (estimated to total around $1.6 trillion as of early 2020). When thinking about the AD/AS model, which curve would this shift in the short-run, and in which direction? AD curve, to the left AD curve, to the right OSRAS curve only, to the right OSRAS and AD curves, to the left. OSRAS and LRAS curves, to the leftarrow_forward
- Use the AD - AS model in the figure below to answer the following questions. Suppose the economy is currently experiencing an inflationary gap, without any government policy intervention, the economy would move from ◻ a) C to D b) B to A c) C to B d) A to E e) E to Aarrow_forwardGraphically derive and explain the AD curve.arrow_forwardThe effect of Federal Reserve action (or inaction) in the AD-AS model The following graph shows an economy that is currently producing at point A (grey star symbol), which corresponds to the intersection of the AD1AD1 and SRAS1SRAS1 curves. According to the graph, the potential output of this economy is $16 trillion $12 trillion $11 trillion $14 trillion $10 trillion . Since real GDP is currently $12 trillion (as shown by point A), this level of potential output means there is currently a recessionary gap an expansionary gap of $3 trillion $4 trillion $1 trillion $5 trillion $2 trillion . Along SRAS1SRAS1, wages would have been negotiated based on an expected price level of 135 140` 145 . Since the actual price level at point A is 140, this means that real wages are lower than the same as higher than had been negotiated, which will decrease increase unemployment. If the Fed does not intervene, these labor market conditions…arrow_forward
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