Question

In: Economics

In the AD/AS model, what must happen for the economy to be in short run equilibrium?...

In the AD/AS model, what must happen for the economy to be in short run equilibrium? How about long run equilibrium?

Solutions

Expert Solution


Related Solutions

Using diagrams and the short-run AD-AS model, show the three short-run equilibrium states of the economy...
Using diagrams and the short-run AD-AS model, show the three short-run equilibrium states of the economy and illustrate (i) a recessionary gap, (ii) an inflationary gap, and (iii) full employment equilibrium.
Assume that the economy is initially at a short-run equilibrium where the AD intersects with the...
Assume that the economy is initially at a short-run equilibrium where the AD intersects with the short-run AS (SRAS). My year is 2017 and country is Brazil. To do this, you will first need an estimate for potential Real GDP (RGDP) and the inflation rate at the long-run equilibrium. Assume for simplicity that potential RGDP and long-run equilibrium inflation is equal to the average of the indicator from the last five years. These numbers for my year are: average GDP...
1. Using the AS-AD model diagram, illustrate what happens to the LONG-RUN and SHORT-RUN equilibrium level...
1. Using the AS-AD model diagram, illustrate what happens to the LONG-RUN and SHORT-RUN equilibrium level of aggregate output and inflation, when the economy is hit by a negative (adverse) demand shock and there is NO POLICY response. Suppose the economy is at a long-run equilibrium before it is hit by the negative demand shock. Make sure you properly label all the axes and curves. Will the negative demand shock more likely lead to an expansion or recession in the...
Consider the AS-AD model where the economy is not in long-run equilibrium, in particular, assume there...
Consider the AS-AD model where the economy is not in long-run equilibrium, in particular, assume there is a negative output gap (that is, the economy is in a recession). (a) Describe the adjustment under fixed exchange rates if there is no government intervention. (b) Contrast your answer with that under flexible exchange rates
Question 1: The AD-AS Model Suppose the economy is initially in long-run equilibrium, and there is...
Question 1: The AD-AS Model Suppose the economy is initially in long-run equilibrium, and there is a positive demand shock. a. Describe the short-run effects of this positive demand shock on output, unemployment, and prices. b. Describe how the economy will automatically move back to the potential level of output in the long run. c. Illustrate your answers in point (a) and (b) using an AD-AS graph. Show the short-run effects and the long-run adjustments.
Suppose that the economy is initially in long-run equilibrium as depicted in the AD-AS model. Suppose...
Suppose that the economy is initially in long-run equilibrium as depicted in the AD-AS model. Suppose politicians believe that the current level of output is too low and encourage the central bank to engage in expansionary monetary policy. a. (4 points) Discuss two ways in which the Central Bank can try to increase the money supply. Be explicit. b. (6 points) What are the effects of the expansionary policy in the short run? Show in the appropriate graph(s). c. (5...
Suppose that the economy is initially in long-run equilibrium as depicted in the AD-AS model. Suppose...
Suppose that the economy is initially in long-run equilibrium as depicted in the AD-AS model. Suppose politicians believe that the current level of output is too low and encourage the central bank to engage in expansionary monetary policy. a. (4 points) Discuss two ways in which the Central Bank can try to increase the money supply. Be explicit. b. (6 points) What are the effects of the expansionary policy in the short run? Show in the appropriate graph(s). c. (5...
Draw an AD-AS model depicting an economy with a recessionary gap in the short-run due to...
Draw an AD-AS model depicting an economy with a recessionary gap in the short-run due to dramatic decline in net exports. Assume the full potential real GDP in the economy is 20 and that actual real GDP is 10. If the multiplier is equal to 2 what amount of government spending would eliminate the recessionary gap? Depict the effect of an increase in government spending on your AD-AS graph. If the multiplier is equal to 2, what is the marginal...
Using the AD-AS model show what will happen to the equilibrium level of output Y and...
Using the AD-AS model show what will happen to the equilibrium level of output Y and the level of prices P if a. There is an increase in oil prices. b. The government raises taxes. c. There is an increase in oil prices and the government increases spending to fight a recession.
Assume the economy is at full employment. Use the IS-LM/ AD-AS model to show the short-run...
Assume the economy is at full employment. Use the IS-LM/ AD-AS model to show the short-run and long-run impacts of a positive demand shock such as an increase in business confidence and investment spending on: the real interest rate (r), real GDP (Y), unemployment (U), consumption spending (C), the nominal money supply (M), the price level (P) and the real value of the money supply(M/P). You must present properly labeled (IS-LM and AD-AS diagrams to show the SR and LR...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT