Question

In: Economics

For each of the following situations, show how (if at all) the IS, MP, and AD...

For each of the following situations, show how (if at all) the IS, MP, and AD curves are affected. Show clearly any shifts or movements along the curves. If there is no change, just type “No change in …”

a. A decrease in financial frictions

b. An increase in the current inflation

c. Firms become more optimistic about the future of the economy

d. An autonomous monetary policy tightening occurs

e. An increase in taxes and an autonomous easing of monetary policy happens at the same time

Solutions

Expert Solution

A) The IS curve will shift to its right, MP curve will not shift and the AD curve will shift to its right.

B) An increase in the current inflation rate will lead to a movement along the MP curve, which will further increase the real interest rate and the increase in the real interest rate will bring a movement along the IS curve to lower output ,the increase in inflation represents a movement along the AD curve, reducing output and does not shift the AD curve.

C) Autonomous investment will increase so the IS curve shifts to the right, there will be no change to MP curve shift the AD curve shifts to the right.

D) A decrease in autonomous consumption will shift the IS curve to its left, the MP curve will not shift the and the AD curve shifts to the left.

E) The increase in taxes will shift the IS curve to the left and the easing of monetary policy will move the economy along the IS curve and the tax change will have no affect on the MP curve, but the monetary policy change will shift the MP curve down, the monetary policy easing shifts the AD curve to the right, while the tax increase shifts the AD curve to the left meaning the net effect on the AD curve could not be determined without having information about the relative shifts due to the tax and monetary easing effects.

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

For each of the following situations, use an AD/AS model to describe what happens to price...
For each of the following situations, use an AD/AS model to describe what happens to price levels and output in Canada in the short run. In each case, assume the economy starts in long- and short-run equilibrium, and describe the appropriate shifts in the AS or AD curves. Instructions: You may select more than one answer. Click the box with a check mark for correct answers, and click to empty the box for the wrong answers. a. A stock market...
For each of the following situations, use an AD/AS model to describe what happens to price...
For each of the following situations, use an AD/AS model to describe what happens to price levels and output in the United States in the short run. In each case assume the economy starts at potential GDP, and describe the appropriate shifts in the AS or AD curves. a. A stock market crash reduces people’s wealth.    Yes/No Aggregate demand shifts to the left Yes/No Aggregate demand shifts to the right Yes/No Aggregate supply shifts to the left Yes/No Aggregate...
For each of the following, use the AD-AS diagram to show the short-run and longrun effects...
For each of the following, use the AD-AS diagram to show the short-run and longrun effects on output and inflation (assuming “self-correction”, i.e. no “stabilization policy”). Assume that the economy starts in long-run equilibrium. a) The government reduces taxes. b) The Fed tightens monetary policy. c) Oil prices drop sharply and unexpectedly.
Based on the AS-AD framework, explain and demonstrate the effect of the following situations on the...
Based on the AS-AD framework, explain and demonstrate the effect of the following situations on the equilibrium income and price levels i)   An increase in the cost of imported goods that are used as inputs for domestically produced products.
For each of the following, use an AD-AS diagram to show the short-run and long-run effects...
For each of the following, use an AD-AS diagram to show the short-run and long-run effects on output and inflation. Assume the economy starts in long-run equilibrium. a. An increase in consumer confidence that leads to higher consumption spending. b. A reduction in taxes. c. An easing of monetary policy by the Fed (a downward shift in the policy reaction function). d. Now, in addition to the increase in consumer spending, suppose that the economy experiences a favourable inflation shock...
. Evaluate the effect of the following situations on the AD curve, AS curve, equilibrium price...
. Evaluate the effect of the following situations on the AD curve, AS curve, equilibrium price level, and equilibrium output in the U.S.                 (a) The U.S. imposes tariffs on foreign goods to promote domestic industry. In retaliation, foreign countries impose tariffs on U.S. goods.                 (b) Congress decides to decrease personal income taxes, and to compensate for the lost revenue they decrease business subsidies.                 (c) A technology boom improves technology across industries, improving their productivity. (d) U.S. oil...
Please prepare accounting entries or answer the questions asked for the following independent situations (SHOW ALL...
Please prepare accounting entries or answer the questions asked for the following independent situations (SHOW ALL WORK): Diamond Company owns 40% of the stock of Silver Company. On January 1, 2019, Silver reports total income of $4,000,000. On June 1, 2019, Silver pays total dividends to its shareholders of $1,000,000. Prepare the necessary accounting entries for Diamond. May Company purchased a bond issued by August Company on September 1, 2019 for $1,000,000. The bond is properly classified as Trading. On...
1. Explain how each of the following events affects the AD curve
 1. Explain how each of the following events affects the AD curve a. An increase in consumer confidence leads to higher consumption spending.  Aggregate demand shifts to the right  Aggregate demand is unchanged Aggregate demand shifts to the let b. The government reduces income taxes.  Aggregate demand shifts to the left  Aggregate demand is unchanged  Aggregate demand shifts to the right2. Explain how each of the following events affects the AS curve. a. The Fed increases the money supply. Aggregate supply is unchanged  Aggregate supply shifts to the right  Aggregate supply shifts...
For each of the following, forecast how prices and output will change by drawing and AD-AS...
For each of the following, forecast how prices and output will change by drawing and AD-AS graph, and explain your answers using the step by step method to forecast macroeconomic outcomes. The latest data on consumer confidence indicate that consumers have become pessimistic about the future of the economy and are therefore spending less Innovations in solar cell technology cause energy prices to decline across the country. The federal government passes a new bill that dramatically increases government spending on...
Scroll down to complete all parts of this task. For each of the following independent situations,...
Scroll down to complete all parts of this task. For each of the following independent situations, select from the option list provided the appropriate effect, if any, on Company A's December 31, Year 3, financial statements. Each choice may be used once, more than once, or not at all. Situation Effect 1. On December 31, Year 3, Company A incurred a probable loss that can be reasonably estimated between $50,000 and $300,000. No amount within the range appears to be...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT