Question 2: Suppose there is a recession in the economy that is caused by a sudden...

Question 2: Suppose there is a recession in the economy that is caused by a sudden change in aggregate demand. a) Show the recession on a graph. What will happen to the price level, output and unemployment? b) Assuming no government intervention, what will happen in the long-run? c) Now suppose the government decides to intervene. What can be done? Is there a trade-off decision in this case? If there is, explain. d) Let’s assume that the recession in the economy was caused by a temporary increase in oil prices which shifts the short-run aggregate supply to the left. What will happen to the price level, output and unemployment? e) Now suppose the government decides to intervene. Is there a trade-off decision in this case? If there is, explain.

Expert Solution

Rahul Sunny answered 7 months ago

2. Suppose an economy with flexible exchange rates is facing a recession and unemployment. a. Describe...

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Suppose that the economy is in a recession and assume that the IS curve is relatively...

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Suppose the economy is in a recession. Which of the following is a valid argument for...

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Suppose the Fed would like to stimulate the economy that is In a state of recession....

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Suppose that the economy is currently experiencing a recession and that revenues for the current year...

Suppose that the economy is currently experiencing a recession and that revenues for the current year are equal to expenditures. a. What is the budget deficit in this case? b. How would a cyclically adjusted budget deficit be different? Explain.

Suppose the US economy is in recession. The unemployment rate is 7% and the Federal Reserve...

Suppose the US economy is in recession. The unemployment rate is 7% and the Federal Reserve Bank is considering using monetary policy to expand output. Assume the bank knows, with certainty, that: i. absent changes in monetary policy, unemployment will still be 7% next year; ii. the natural rate of unemployment is 5%; iii. from Okun's law, 1% more output growth for a year leads to a 0.4% reduction in the unemployment rate. Also assume the bank can effectively use...

Suppose an economy that starts in general equilibrium is thrown into a recession via a leftward...

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Suppose the economy is in a recession and the unemployment rate is exceptionally high. use graphical...

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a. Suppose an economy was originally operating at potential output. Unfortunately, a pandemic outbreak caused the...

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