Suppose the economy is in a long-run equilibrium. a. Draw a diagram to illustrate the state...

Suppose the economy is in a long-run equilibrium.
a. Draw a diagram to illustrate the state of the economy. Be sure to show aggregate demand, short run aggregate supply, and long-run aggregate supply.
b. Now suppose that a stock market crash causes aggregate demand to fall. Use your diagram to show what happens to output and the price level in the short run. What happens to the unemployment rate?
c. Use the sticky-wage theory of aggregate supply to explain what will happen to output and the price level in the long run (assuming no change in policy). What role does the expected price level play in this adjustment? Be sure to illustrate your analysis in a graph.

Solutions

Expert Solution

Rahul Sunny answered 1 month ago

Next > < Previous

Related Solutions

Suppose the economy is in long-run equilibrium. [Only one diagram is required for this question, draw...

Suppose the economy is in long-run equilibrium. [Only one diagram is required for this question, draw and label clearly to show all relevant points and moves] [4 marks] 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. [4 marks] The central bank raises the money supply by 10%. Use the diagram you drew in part a) to show what happens to...

Suppose economy is in long run equilibrium. [Only one diagram is required for this question, draw...

Suppose economy is in long run equilibrium. [Only one diagram is required for this question, draw and label clearly to show all relevant points and moves] 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. The central bank raises the money supply by 10%. Use the diagram you drew in part a) to show what happens to output and price level...

11. Suppose that the economy is in a long run equilibrium. a.) Draw an Aggregate Supply...

11. Suppose that the economy is in a long run equilibrium. a.) Draw an Aggregate Supply - Aggregate Demand graph of the economy. Label the equilibrium point “E1 ". The Fed conducts an open market sale of bonds. On your graph, show the movement of the appropriate curves in the short-run AND long-run. Label the short run equilibrium point “E2” and label the long run equilibrium point “E3” b.) Draw an Aggregate Supply - Aggregate Demand graph of the economy....

Suppose the economy is in long-run equilibrium.

Scenario 1 - Pessimism Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. Scenario 1 - Pessimism. Which curve shifts and in which direction? aggregate demand shifts right aggregate demand shifts left aggregate supply shifts right. aggregate supply shifts left.

England in 1997. Suppose the economy of England is initially in a long run equilibrium. Draw...

England in 1997. Suppose the economy of England is initially in a long run equilibrium. Draw a Keynesian Cross (AE/AP). AD/AS diagram, IS/LM diagram, and Money Market diagram for England. Label Everything

Using the AD-AS diagram, draw an economy in long run equilibrium. Indicate output and price level...

Using the AD-AS diagram, draw an economy in long run equilibrium. Indicate output and price level as Y1 and P1. Suppose a pandemic is affecting the economy and the Federal government invests heavily in diagnostic and anti-body testing, increasing government purchases by 10 billion. Indicate the effect on the economy using your diagram. Remember, decide which curve shifts and which direction. Indicate the new equilibrium with Y2 and P2. In words, what happens to the economy given the increase in...

Suppose the economy is operating at both short-run and long-run equilibrium. a) Draw an initial graph...

Suppose the economy is operating at both short-run and long-run equilibrium. a) Draw an initial graph showcasing this information. Label the initial equilibrium (A).

if the economy is in a current long run equilibrium at $8 Trillion, A) Draw the...

if the economy is in a current long run equilibrium at $8 Trillion, A) Draw the AS/AD graph, label currecnt Equilibrium "A", what happeins if A stock market crash causes households and businesses to become skeptical about the future economy. Show the effect on your graph and label the SR eq “B" B) If the government responded by using fiscal policy (starting from B), show where the long run equilibrium ends up, label it “E” C) Starting from A, what happens...

Suppose that the economy is at long-run equilibrium. If there is a sharp decline in the...

Suppose that the economy is at long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, then in the short run a. real GDP will rise and the price level might rise, fall, or stay the same. b. real GDP will fall and the price level might rise, fall, or stay the same. c. the price level will rise, and real GDP might rise, fall, or stay the...

Question 1 a. Draw a diagram to show the long run equilibrium condition of the perfectly...

Question 1 a. Draw a diagram to show the long run equilibrium condition of the perfectly competitive firm [5 marks] b. Explain three reasons why monopolies arise [3 marks] c. When does a perfectly competitive firm temporarily shut down production? When does it leave the industry all together? [4 marks] d. What obstacles might a group of oligopolists encounter in forming a cartel? [4 marks]

Subjects