Draw an aggregate demand/aggregate supply model of the economy to predict what happens to GDP, price,...

Draw an aggregate demand/aggregate supply model of the economy to predict what happens to GDP, price, and unemployment levels when households increase credit card debt or usage. Label graph.

Solutions

Expert Solution

When a household in the market increases the usage of credit card, this will shift the AD curve to the right and the new equilibrium will be at a higher price and higher level of output.

Here, the intial equilibrium in the market was at A, price level p2 and ouptut q1, when the use of credit card increased the demand curve shifted to the right and the new equilibrium will be at a higher price P1 and higher output Q*, and equilibrium B.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Use the Aggregate Demand-Aggregate Supply Model to illustrate what happens to US output and the price...

Use the Aggregate Demand-Aggregate Supply Model to illustrate what happens to US output and the price level in both the short-run and the long-run for each of the following. Begin with a long-run equilibrium, and use a separate graph for each. a. There is a decrease in expected income in the future b. A major oil spill causes the price of oil to suddenly double c. There is an economic boom in Canada, which is a major trading partner of...

Using the aggregate demand–aggregate supply model, illustrate (draw a graph) a market economy experiencing a recessionary...

Using the aggregate demand–aggregate supply model, illustrate (draw a graph) a market economy experiencing a recessionary gap (include aggregate demand, short-run and long-run aggregate supply curves). Label all parts of the graph. In your own words, explain how government can close the recessionary gap? What would be the effect on price and real GDP?

Illustrate graphically an aggregate demand/aggregate supply of an economy in a recessionary situation. Show the GDP...

Illustrate graphically an aggregate demand/aggregate supply of an economy in a recessionary situation. Show the GDP gap graphically. How can the Federal help close the recessionary gap moving the economy back toward full employment using monetary policy? Account for the role of the money supplier in the answer. Graphically show the prescription chosen. What is the potential impact on interest rates, budget deficit and trade deficit if applicable? Explain your answer.

Using the aggregate demand-aggregate supply model, predict what happens in the short run when the federal government enacts a cut in the personal income tax rates.

Using the aggregate demand-aggregate supply model, predict what happens in the short run when the federal government enacts a cut in the personal income tax rates. 1) The aggregate supply curve shifts right; the aggregate demand curve is not affected; price level decreases; real GDP increases. 2) The aggregate supply curve shifts left; the aggregate demand curve is not affected; price level increases; real GDP decreases. 3) The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and...

ESSAY 1. Draw the Phillips curve. Use the model of aggregate demand and aggregate supply to...

ESSAY 1. Draw the Phillips curve. Use the model of aggregate demand and aggregate supply to show how policy can move the economy from a point on this curve with high inflation to a point with low inflation. 2. Does inflation and unemployment would be related in the long run? Give your explanation and draw the graph. 3. Suppose there is a tornado in western Oklahoma, causing a supply shock for wheat. What will happen in aggregate demand and aggergate...

Draw the aggregate demand and aggregate supply graphs in a three-panel model: In the first graph,...

Draw the aggregate demand and aggregate supply graphs in a three-panel model: In the first graph, show aggregate demand on the graph and aggregate supply in the immediate short run. In the second graph, again show aggregate demand, but this time show aggregate supply in the short run. Finally, in the last panel, show aggregate demand and aggregate supply in the long-run. Be sure to label each axis and each curve in each graph Discuss the following by referring to...

(Explain what happens to the position of the nation's aggregate demand or aggregate supply curve, the...

(Explain what happens to the position of the nation's aggregate demand or aggregate supply curve, the short-run level of equilibrium output, and the nation’s price level if: (a) Consumer confidence increases. (b) Stock prices decline 40 percent. (c) Oil prices drop to $12 per barrel. (d) The central bank sharply increases interest rates. (e) Government increases the minimum wage). (Hint: Example: AS shifts to the right, RGDP declines, P increases) Maximum size for new files: 8MB

Using the aggregate demand and aggregate supply model, explain the effects of the following on price...

Using the aggregate demand and aggregate supply model, explain the effects of the following on price and real income in Malaysia. 1. Consumers are worried with the country’s economic progress. 2. Firms have begun to use more high-tech machineries for production. 3. The Malaysian government has decided to spend on a major revamp of the public transportation system. 4.Malaysian higher education system has produced highly skilled employees.

Using the aggregate demand and aggregate supply model, explain the effects of the following on price...

Using the aggregate demand and aggregate supply model, explain the effects of the following on price and real income in Malaysia. The Malaysian government has decided to spend on a major revamp of the public transportation system.

Using the aggregate demand and aggregate supply model, explain the effects of the following on price...

Using the aggregate demand and aggregate supply model, explain the effects of the following on price and real income in Malaysia. Draw diagram for each question. (a) Consumers are worried with the country’s economic progress. [10 marks] (b) Firms have begun to use more high-tech machineries for production. [10 marks] (c) The Malaysian government has decided to spend on a major revamp of the public transportation system. [10 marks] (d) Malaysian higher education system has produced highly skilled employees. [10...

Subjects