An economy is initially at its long-run equilibrium. In reducing the country's carbon footprint, the government...

An economy is initially at its long-run equilibrium. In reducing the country's carbon footprint, the government now spends a lot of money on tree plantation around urban areas.

		in the short run, the aggregate demand curve shifts right. In the long run the price level increases, output returns to its potential, and real wages do not change.
		In the short run, the aggregate demand curve shifts left. In the long run, the price level decreases, output returns to its potential, and real wages decrease.
		the aggregate demand curve shifts left; the price level decreases, output returns to its potential, and real wages do not change.
		In the short run, the aggregate demand curve shifts right. In the long run, the price level increases, output returns to its potential, and real wages increase.
		In the short run, the aggregate demand curve shifts left. In the long run, the price level increases, output returns to its potential, and real wages increase.

Expert Solution

in the short run, the aggregate demand curve shifts right. In the long run the price level increases, output returns to its potential, and real wages do not change.- is correct

Rahul Sunny answered 3 years ago

Consider an economy that initially stays at its long-run equilibrium. Policy affects the economy with a...

Consider an economy that initially stays at its long-run equilibrium. Policy affects the economy with a one-period lag. Answer the following questions: Use the 3-equations model and diagrams to provide a period by period explanation of how a negative aggregate demand shock lead to a deflation trap, where output and inflation are falling without limit. How can the government use fiscal policy to escape the deflation trap? Illustrate with diagrams. Suppose that the current public debt is already quite large,...

The economy is initially in its long-run equilibrium. The outbreak of the pandemic has increased the...

The economy is initially in its long-run equilibrium. The outbreak of the pandemic has increased the speed of autonomation and artificial intelligence (AI); as a result, the spending on autonomation and AI increases by 10%. a) According to the long-run classical model, what happens to the equilibrium levels of output, real interest rate, and investment? What happens to the real wage and the real rental price of capital? Explain your answer with the aid of THREE diagrams – one for...

. Initially, the economy was in its long-run equilibrium. Then, consumers’ preference for consumption fell; they...

. Initially, the economy was in its long-run equilibrium. Then, consumers’ preference for consumption fell; they became consuming less at any price level. .a. Because of the consumption change, how would the curves of LRAS, SRAS and AD shift in the short-run: Leftward, Rightward, or No shift? How would the output and the price would change in the short-run: Decrease, Increase, or No change? SRAS: LRAS: AD: Output: Price: .b. Consider the monetary policy response...

Suppose that the government of an economy that is in its long-run equilibrium gives out money...

Suppose that the government of an economy that is in its long-run equilibrium gives out money to most of the residents. Using the IS-LM and AS-AD model, describe both the short-run effects and the long-run effects of the following changes on national income, the interest rate, the price level, consumption, investment, and real money balances. Make sure to use both words and figures.

England in 1997. Suppose the economy of England is initially in a long run equilibrium. Draw...

England in 1997. Suppose the economy of England is initially in a long run equilibrium. Draw a Keynesian Cross (AE/AP). AD/AS diagram, IS/LM diagram, and Money Market diagram for England. Label Everything

Consider an economy that is initially in long-run equilibrium. Unexpectedly, there is a sudden massive decrease...

Consider an economy that is initially in long-run equilibrium. Unexpectedly, there is a sudden massive decrease in house prices. a) Explain why this is likely to lead to a reduction in private consumption. Theoretically, could consumption also increase? Explain. (3 points) b) Show in the AS-AD diagram, and explain, the consequences of this decline in consumer spending. (3 points) c) If the central bank does not change its monetary policy rule, how will it react to the situation in (b)?...

53.) Assume that the economy is initially in a long-run equilibrium. Now suppose that businesses and...

53.) Assume that the economy is initially in a long-run equilibrium. Now suppose that businesses and households become more pessimistic about the future and decide to invest less in new structures, tools, and equipment, and also decide to engage in less consumption spending, at the current price level. a.) What will happen to output and the price level in the short run? Output will (rise, fall, stay the same) and the price level will (rise, fall, stay the same). (2...

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.

Assume the economy is initially in a long run equilibrium. a. Use AD-AS and Phillips curve...

Assume the economy is initially in a long run equilibrium. a. Use AD-AS and Phillips curve diagrams to show the short run effects in prices (inflation) and output (employment) if firms are pessimistic about economy in the future b. In order to maintain output what would government do with fiscal policy in response to event in part a

Suppose the economy is initially in the long-run equilibrium, but a drop in consumer confidence causes...

Suppose the economy is initially in the long-run equilibrium, but a drop in consumer confidence causes the AD curve to shift to the left. What will be the impact on prices and output in the short run and long run? Select the correct answer below: In the short run, and long run, both prices and output will fall. In the short run, prices will fall, but output will stay the same. In the long run, both prices and output fall....

Question