Question
In: Economics
4-) Suppose we have an economy which is in a long-run equilibrium. a) Graph this economy...
4-) Suppose we have an economy which is in a long-run
equilibrium.
a) Graph this economy using long-run and short-run Phillips
curves.
b) Now suppose the aggregate demand decreased as the
government spending is reduced. Show what happens to the economy on
a Phillips curve graph. Where is the economy’s current position on
the graph now? Is it possible to return to the original position
(with the initial inflation and unemployment levels) through
monetary policy? Explain.
c) Now, you should consider an alternative case. Starting from
the initial long-run position of the economy, suppose the oil
prices increased. Show the new position of the economy on a Philips
curve graph. Is it possible to return to the original position this
time (with the initial inflation and unemployment levels) through
monetary policy? Explain.
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
Suppose we have an economy which is in a long-run equilibrium. a) Graph this economy using...
Suppose we have an economy which is in a long-run
equilibrium.
a) Graph this economy using long-run and
short-run Phillips curves
b) Now suppose the aggregate demand decreased
as the government spending is reduced. Show what happens to the
economy on a Phillips curve graph. Where is the economy’s current
position on the graph now? Is it possible to return to the original
position (with the initial inflation and unemployment levels)
through monetary policy? Explain
c) Now, you should consider...
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.
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).
4) Suppose the economy is in long-run equilibrium, with real GDP at $16 trillion and the...
4) Suppose the economy is in long-run equilibrium, with real GDP
at $16 trillion and the unemployment rate at 5%, Now assume that
the central bank unexpectedly decreases the money supply
by 6%.
a. Illustrate the short run effects on the macro-economy by
using the aggregate supply-aggregate demand model. Be sure to
indicate the direction of change in Real GDP, the Price Level and
the Unemployment Rate. Label all curves and axis for full
credit.
5) Suppose the economy is...
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...
Suppose the economy is operating in long-run equilibrium and a positive demand shock hits. We expect...
Suppose the economy is operating in long-run equilibrium and a
positive demand shock hits. We expect a short-run increase in real
GDP and the price level and a long-run _____ in real GDP (in
comparison to the then short run GDP) and _____ the price level (in
comparison to the then short run price level).
increase; decrease
decrease; increase
increase; increase
decrease; decrease
Changes in aggregate demand can be caused by changes in:
business costs.
raw materials costs.
the expenses...
Suppose that the economy is initally at a long run equilibrium and that prices are partially...
Suppose that the economy is initally at a long run equilibrium and
that prices are partially sticky. Then the Fed increases the money
supply.
a. Assuming any inflation to be unexpected, describe any
changes in GDP, unemployment, and inflation that are caused by the
monetary expansion. Explain your conclusions using three diagrams:
one for the IS-LM model and one for the AD-AS model.
b. Assuming instead that any resulting inflation is expected,
describe any changes in GDP, umemployment, and inflation...
Suppose the economy is in long-run equilibrium. In a short span of time, there is a...
Suppose the economy is in long-run equilibrium. In a short span
of time, there is a sharp decline in the stock market, a tax cut,
an increase in the money supply, and a decline in the value of the
dollar. In the short run, what would we expect to happen?
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...
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