Question

In: Economics

Assume a developed nation’s economy is in a long run equilibrium and shows signs of slow,...

Assume a developed nation’s economy is in a long run equilibrium and shows signs of slow, steady growth. In addition to that, here are a few other facts and assumptions you should keep in mind: 1) Its currency has appreciated slightly over the last 6 months against all major currencies; 2) This nation recently abandoned all of its trade agreements with no word on if or when they might be renegotiated; 3) The central bank pushed the overnight bank-to-bank lending rate from 0% to 1% to 1 ½ % over the last 6 months; 4) The population is educated but lagging behind many other developed nations; 5) Consumer confidence is strong in some regions, weak in others; 6) Its monetary policy is sound. Fiscal policymakers plan to enact a significant tax cut. Given this nation’s current status, what impact will the tax cut have on this nation’s economy in the short run and long run? Use the AD/AS framework (but do not draw a graph) in your answer.

Solutions

Expert Solution

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

Assume a developed nation’s economy is in a long run equilibrium and shows signs of slow,...
Assume a developed nation’s economy is in a long run equilibrium and shows signs of slow, steady growth. In addition to that, here are a few other facts and assumptions you should keep in mind: 1) Its currency has appreciated slightly over the last 6 months against all major currencies; 2) This nation recently abandoned all of its trade agreements with no word on if or when they might be renegotiated; 3) The central bank pushed the overnight bank-to-bank lending...
Assume a developed nation’s economy is in a long run equilibrium and shows signs of slow,...
Assume a developed nation’s economy is in a long run equilibrium and shows signs of slow, steady growth. In addition to that, here are a few other facts and assumptions you should keep in mind: 1) Its currency has appreciated slightly over the last 6 months against all major currencies; 2) This nation recently abandoned all of its trade agreements with no word on if or when they might be renegotiated; 3) The central bank pushed the overnight bank-to-bank lending...
Assume that the economy is at a long-run equilibrium, with unemployment at 5%, and inflation at...
Assume that the economy is at a long-run equilibrium, with unemployment at 5%, and inflation at 2% pa. Suppose a shock causes a very large increase in the cost of crude oil and gas. Assume that Ireland does not produce any oil or gas, and imports large amounts of oil and gas. The shock causes unemployment to rise to 9%, and inflation to rise to 4% pa. Using the data, write out the equation of the Phillips curve before, during,...
Assume that the economy of Robsville is currently in long-run equilibrium, with a natural rate of...
Assume that the economy of Robsville is currently in long-run equilibrium, with a natural rate of unemployment equal to 6% and an inflation rate of 2%. a) Draw a correctly labeled graph of the short-run Phillips curve, and label the curve as "SRPC". Indicate the point on the SRPC corresponding to the current unemployment and inflation rates labeled as "R". b) On your graph in part (a), draw the long-run Phillips curve, and label it as "LRPC". c) Assume that...
“COVID-19 Impacton Economy” Assume the economy of country A is in a long-run equilibrium with full...
“COVID-19 Impacton Economy” Assume the economy of country A is in a long-run equilibrium with full employment. The nominal wage of workers are fixed in the short run. a)Draw a graph which shows the short-run aggregate supply, long-run aggregate supply, and aggregate demand. Describe the equilibrium point and show each of the following: i ) Equilibrium output, labelled Y1 ii) Equilibrium price level, labelled P1. b)Owing to the outbreak of COVID19, the export market of country A has decreased. On...
Suppose a developed nation’s economy is showing early signs of a recession. This comes despite fiscal...
Suppose a developed nation’s economy is showing early signs of a recession. This comes despite fiscal policymakers having implemented a significant tax cut (i.e., expansionary fiscal policy) one year earlier. Since this expansionary policy was implemented, inflation has been rising so the central bank has been taking steps to reduce it back to its pre-fiscal policy level (but not lower). Using the language of the AD/AS model, identify 2 possible causes for the recession, given the facts described above and...
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.
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...
Consider the AS-AD model where the economy is not in long-run equilibrium, in particular, assume there...
Consider the AS-AD model where the economy is not in long-run equilibrium, in particular, assume there is a negative output gap (that is, the economy is in a recession). (a) Describe the adjustment under fixed exchange rates if there is no government intervention. (b) Contrast your answer with that under flexible exchange rates
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
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT