Suppose there is an exogenous increase in the price of oil in an economy. Use the...

Suppose there is an exogenous increase in the price of oil in an economy.

Use the aggregate demand and supply model to illustrate and examine the impact of the oil-price increase on output, employment and the price level in both the short run and the long run.
If the Bank of Canada cares about keeping output and employment at their natural-rate levels, what is the policy response of the Bank of Canada? What is the impact of policy response on the price level? Use the aggregate demand and supply model to explain your answer.

Expert Solution

Rahul Sunny answered 1 year ago

Suppose there is an exogenous increase in investment. Use the large open economy model to answer...

Suppose there is an exogenous increase in investment. Use the large open economy model to answer the following: 1. Will the domestic real interest rate change? Explain. 2. Does this shock affect net capital outflows? Explain why or why not. 3. What happens to the value of the domestic currency in the foreign exchange market? Why does the value of the domestic currency change? 4. Will net exports change? Why or why not? 5. Will domestic investment change? Why or...

Suppose there is an exogenous increase in taxes,. Use the large open economy model to answer...

Suppose there is an exogenous increase in taxes,. Use the large open economy model to answer the following: 1. Does this shock affect national saving? Explain. 2. Does this shock affect net capital outflows? Explain why or why not. 3. What happens to the value of the domestic currency in the foreign exchange market? Why does the value of the domestic currency change? 4. Will net exports change? Why or why not? 5. Will the domestic real interest rate change?...

Suppose a small open economy enacts imports restrictions, which is represented as an exogenous increase in...

Suppose a small open economy enacts imports restrictions, which is represented as an exogenous increase in net exports in our model. Using the small open economy model, describe and explain the impact of the import restrictions on the small open economy.

Suppose there is an exogenous decrease in consumption,. Use the small open economy model to answer...

Suppose there is an exogenous decrease in consumption,. Use the small open economy model to answer the following: 1. How does this shock affect national saving? Explain. 2. Does this shock affect net capital outflows? Explain why or why not. 3. What happens to the value of the domestic currency in the foreign exchange market? Why does the value of the domestic currency change? 4. Will net exports change? Why or why not? 5. Will domestic investment change? Why or...

Consider the effects of an exogenous increase in the domestic price level. For each of the...

Consider the effects of an exogenous increase in the domestic price level. For each of the assets listed, explain how the change in the price level would affect the wealth of the asset holder. Then explain the effect on aggregate (private sector) wealth and the effect on the aggregate expenditure (AE) curve. 8.1 Cash holdings 8.2 A household mortgage 8.3 A government bond that promises to pay the holder $10,000 on January 1, 2025

An oil price _______ is a sudden increase or decrease in the nominal or real price...

An oil price _______ is a sudden increase or decrease in the nominal or real price of oil. This is an example of a ________ -side shock. Fill in the blanks

1. *Suppose that the economy is described by: Y =C(Y,T)+I(Y,i)+G, with G, T exogenous. (a) Use...

1. *Suppose that the economy is described by: Y =C(Y,T)+I(Y,i)+G, with G, T exogenous. (a) Use the total derivative to derive di/dY (b) What is the sign of this derivative? (c) What does the slope of the line depend on? Explain the intuition. (d) Graph this curve. (e) Use the total derivative to find dY/dG and dY/dT

5. An increase in the price of oil causes a. a decrease in the demand for...

5. An increase in the price of oil causes a. a decrease in the demand for substitute goods. b. an increase in the price of substitute goods. c. an increase in the demand for complementary goods. d. an increase in the price of complementary goods. 6. During the postwar period, changing patterns of consumer demand led to changes in the distribution of jobs in the US economy. In particular, the income elasticity of demand for many consumer products was ____________...

Consider an increase in the birth rate. Take this increase to be exogenous. Consider the impact...

Consider an increase in the birth rate. Take this increase to be exogenous. Consider the impact in the Malthusian model. What is the initial impact on per capita income? What is the initial impact on the growth rate in per capita income? Explain the effects on per capita income and the growth rate in per capita income in the long run. Support your answers graphically.

Consider savings and investment in a small, open economy model. Suppose the exogenous world interest rate...

Consider savings and investment in a small, open economy model. Suppose the exogenous world interest rate determines the investment. a) Draw the demand and the supply of loanable funds. What determines the net exports, NX (or net capital outflow) in this open economy? b) Show the impact of a fiscal policy change at home (an increase in G or a decrease in taxes) on savings, investment and net export (NX) with the help of a graph in this model. c)...

Question