Question
In: Economics
Suppose the economy starts at point 1 in the aggregate supply–aggregate demand (AS-AD) graph and at...
Suppose the economy starts at point 1 in the aggregate supply–aggregate demand (AS-AD) graph and at point A on the Phillips curve graph. Points 2 and 3 start out stacked on point 1, but they will need to be moved to the proper locations that reflect steps 2 and 3 described below. Likewise for points B and C.
The AS-AD graph reflects two aggregate demand curves (AD1 and AD2), the long-run aggregate supply curve (LAS) and two short-run aggregate supply curves (SAS1 and SAS 2). The Phillips curve graph reflects the long-run Phillips curve (LRPC) and the short-run Phillips curve (SRPC).
The central bank decides to lower the unemployment rate below the natural rate by decreasing the interest rate. Place point 2 on the AS–AD graph and point B on the Phillips curve graph to describe the short‑run macroeconomic equilibrium that results. Likewise, place points 3 and C to describe the long‑run full‑employment equilibrium.
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
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Draw an aggregate demand (AD)/aggregate supply (AS) graph to
illustrate an economy experiencing a recession. Label all curves
and axes.
Also explain,
The monetary policy you would use to eliminate the recession you
illustrated above, what are the policy impacts on real GDP,
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Draw an economy in an economic bubble and explain the fiscal
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If the policy you implemented in (c) above succeeds, what is
likely to happen...
1. Show in the aggregate demand - aggregate supply framework (AD/AS) an economy in long-run equilibrium....
1. Show in the aggregate demand - aggregate supply framework
(AD/AS) an economy in long-run equilibrium. 2. Again in the AD/AS
framework, show an economy with an inflationary gap and then show
the effects of additional stimulus, say a tax cut, on this economy
in the short-run. 3. Suppose that after the stimulus a trade war
involving intermediate goods breaks out, reducing aggregate supply.
Show the long and short-run effects of this trade war being very
clear about price level,...
Use the following information to draw aggregate demand (AD) and aggregate supply (AS) curves on the following graph.
Use the following information to draw aggregate demand (AD) and aggregate supply (AS) curves on the following graph. a. What is the equilibrium price level? b. What curve would have shifted if a new equilibrium were to occur at an output level of 450 and a price level of $450? AD shifts to the right AD shifts to the left AS shifts to the right AS shifts to the left c. What curve would have shifted if a new equilibrium were to occur at an output level...
Consider a negative short-run aggregate supply shock hitting the economy using the Aggregate supply/aggregate demand (AS/AD)...
Consider a negative short-run aggregate supply shock hitting the
economy using the Aggregate supply/aggregate demand (AS/AD)
model.
Give two examples of such a shock and carefully explain itsshort
-run effects and the underlying reasoning (do NOT provide a
diagram).
Assuming policymakers ignore this shock, explain step by step
what happens in the economy in the longer-term (do NOT provide a
diagram).
How should the central bank and/or the government respond to
this shock? Carefully explain (do NOT provide a diagram)....
Consider a negative short-run aggregate supply shock hitting the economy using the Aggregate supply/aggregate demand (AS/AD)...
Consider a negative short-run aggregate supply shock hitting the
economy using the Aggregate supply/aggregate demand (AS/AD)
model.
a. Give two examples of such a shock and carefully explain its
short-run effects and the underlying reasoning (do NOT provide a
diagram).
b. Assuming policymakers ignore this shock, explain step by step
what happens in the economy in the longer-term (do NOT provide a
diagram).
c. How should the central bank and/or the government respond to
this shock? Carefully explain (do NOT...
Question 1: Suppose an economy is in equilibrium. a) Using aggregate demand and aggregate supply, illustrate...
Question 1: Suppose an economy is in
equilibrium.
a) Using aggregate demand and aggregate supply,
illustrate the equilibrium. Do not forget to include the long-run
aggregate supply.
b) Now suppose the central bank decided to
increase the money supply in the economy. Using the theory of
liquidity preference and the money market graph, illustrate what is
going to happen to the aggregate demand.
c) Draw the new short-run equilibrium of the
economy, as a result of the shift in aggregate...
1. Using the Aggregate Demand-Aggregate Supply logic of Chapter 10, suppose that at first, the economy...
1. Using the
Aggregate Demand-Aggregate Supply logic of Chapter 10, suppose that
at first, the economy is at long-run equilibrium, on both the
short-run and long-run aggregate supply curves (in other words,
unemployment is at the Natural Rate of Unemployment). Then,
government spending rises with no change in
taxes.
A. What happens in the
short-run to output (Y) and the prices of goods?
Explain why using Aggregate Demand and
Supply logic (you don’t need to draw the graphs unless you...
1. Using the aggregate demand (AD), the short-run aggregate supply (SRAS), and the long-run aggregate supply...
1. Using the aggregate demand (AD), the short-run aggregate
supply (SRAS), and the long-run aggregate supply (LRAS) curves,
briefly explain how an open market purchase will affect the
equilibrium price level (P) and real output (Y) in the short run.
Assume the economy is initially in a recession.
2. Using the quantity equation (the equation of exchange)
briefly explain the quantity theory of money. Specifically, how the
quantity theory of money explains why inflation occurs.
Aggregate Supply (AS) and Aggregate Demand (AD) model and AS/AD curves are essential to understand macroeconomic...
Aggregate Supply (AS) and Aggregate Demand (AD) model and AS/AD
curves are essential to understand macroeconomic fluctuations
(business cycles).
Discuss the importance AS-AD model in explaining the
macroeconomic conditions of the economy and business cycles like
recessions.
What factors shift AS and AD curves? How do you explain
macroeconomic fluctuations using AS-AD model and AS/AD curves?
Scenario: Suppose an economy is in equilibrium. a) Using aggregate demand and aggregate supply, illustrate the...
Scenario: Suppose an economy is in equilibrium.
a)
Using aggregate demand and aggregate supply, illustrate the
equilibrium. Do not forget to include the long-run aggregate
supply.
b)
Now suppose the central bank decided to increase the money supply
in the economy. Using the theory of liquidity preference and the
money market graph, illustrate what is going to happen to the
aggregate demand.
c)
Draw the new short-run equilibrium of the economy, as a result of
the shift in aggregate demand...
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