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
Rahul Sunny answered 2 years agoRelated 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...
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