16.) What is the long-run effect on potential output (Yf) of a temporary favorable supply shock...

16.) What is the long-run effect on potential output (Y_f) of a temporary favorable supply shock (A↑)? Up, Down, or Same?

What is the long-run effect on the Price level (P) of a temporary favorable supply shock (A↑)? Up, Down, or Same?

The marginal propensity to consumer is the fraction of one’s overall income spent on consumption. True or False?

An exogenous (or autonomous) increase in some type of spending (e.g., a rise in government purchases) will, in the short-run, cause a larger rise in GDP due to the multiplier effect (e.g., rounds of “respending” that result from the original increase). True or False?

Expert Solution

16.) What is the long-run effect on potential output (Yf) of a temporary favorable supply shock (A↑)?

Same - Since the favorable supply shock is temporary, it will not have any long run effect on potential output.

What is the long-run effect on the Price level (P) of a temporary favorable supply shock (A↑)?

Down - In the SRAS curve wil shift to the right, leading to fall in price level in the long run.

The marginal propensity to consumer is the fraction of one’s overall income spent on consumption.

False - Fraction of overall income spent on consumption is average propensity to save

An exogenous (or autonomous) increase in some type of spending (e.g., a rise in government purchases) will, in the short-run, cause a larger rise in GDP due to the multiplier effect (e.g., rounds of “respending” that result from the original increase). True - Multiplier = 1/(1-MPC)
Change in real GDP = Multiplier x Change in AD

Rahul Sunny answered 6 months ago

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