Macroeconomics (Book Only)
12th Edition
ISBN: 9781285738314
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 8.5, Problem 2ST
To determine
Describe an economy that is neither short-run nor long-run equilibrium.
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Define equilibrium and steady state. Can we find a steady state for each dynamic general
equilibrium model? Why or why not?
A production possibilities curve (PPC) represents the maximum amount of two goods or services produced by manufacturers in an economy.
How are the PPC and long-run aggregate supply curve similar?
Suppose that the government believes the economy is not producing goods and services at its optimal level. In an attempt to stimulate the economy, the government increases the quantity of money in the economy by printing more money.
This monetary policy the economy's demand for goods and services, leading to product prices. In the short run, the change in prices induces firms to produce goods and services. This, in turn, leads to a level of unemployment.
In other words, the economy faces a trade-off between inflation and unemployment: Higher inflation leads to unemployment.
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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- why is the economy not self-correcting? What can be done about it?arrow_forwardThe graph shows an economy in macroeconomic equilibrium. Now, three things occur: The world economy goes into an expansion, domestic businesses expect future profits to rise, and the government increases its expenditure on goods and services as international tensions increase. On the graph, draw one new curve that shows the combined effect of the three events. Label it. Draw a point at the new macroeconomic equilibrium. >>> Draw only the objects specified in the question.arrow_forwardIf markets do not self-adjust, how can a decline in spending lead to a negative process that ruins an economy?arrow_forward
- Which of the following schools of economic thought modelled the economy as a physical system that was quickly brought back to equilibrium by the actions of rational economic agents? Keynesians O The Catastrophists The Neoclassicals O The Austriansarrow_forwardd point f. point e. point b. point d. point h. B Refer to the production possibility graph above. Assume that the economy is in equilibrium at point e. If there is an increase in the wage rate, the new equilibrium is most likely to bearrow_forwardConsider an economy that uses exclusively labor and capital to produce.Suddenly, the government of the economy plans to permanently increase the level ofgovernment purchases. Please use words and figures to illustrate your answers.(1) Suppose the economy is a closed one. How does the long-run GDP of the economychange because of the increased government purchases? (2) Will your answer to (1) be changed if the economy is an open one? Explain youranswers briefly.(3) Suppose the economy is a closed one. Will the increased government purchaseschange the equilibrium interest rate?arrow_forward
- The short-run equilibrium output level is ALL OTHER GOODS (Thousands of units) The following graph shows two production possibilities frontiers (PPFS) for the economy. The PPF closer to the origin (blue curve) is the economy's institutional PPF, and the PPF farther from the origin (purple curve) is the economy's physical PPF. 10 Place the grey point (star symbol) on one of the black points (plus symbol) to indicate the state of the economy when it is operating at the short-run equilibrium described above. 9 8 1 0 0 exists in the labor market of this economy. Physical PPF Institutional PPF 1 + + + 2 Two PPFs + + 3 4 5 6 7 GOOD X (Thousands of units) and the economy is operating In time, wages and costs of production will likely 8 9 10 As a result, State of Economy (?)arrow_forwardWhen the economy is creating less output than its potential, it means: Multiple Choice о O о O contractionary policy needs to be enacted. the government will reduce its spending. the economy is expanding. some resources are unemployed.arrow_forwardif actual real GDP is greater than the equilibrium level of real gdp what happens to restore equilibrium to the economy?arrow_forward
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