Question
In: Economics
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 provide a diagram).
d. Now consider a different shock. Researchers find a cure for COVID-19 and all other diseases, so all people get healthier, retire at a later age and die at the age of 120. How would you capture this situation in the AS/AD model (with the economy starting in long-run equilibrium)? Explain the intuition and show your arguments in a diagram. (Note that there may not be one correct answer; this question is trying to make you think outside the box and we are looking at the quality of your arguments).
Solutions
Rahul Sunny answered 1 year agoRelated Solutions
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)....
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.
Consider an economy described by the following short-run aggregate demand, aggregate supply and long-run aggregate supply...
Consider an economy described by the following short-run
aggregate demand, aggregate supply and long-run aggregate supply
curve:
(short-run aggregate demand curve) P = 200 –
Y
(short-run aggregate supply curve) P = 40 +
Y
(long-run aggregate supply curve) Y *= 120
where P = Price Level (price index with base period’s
index = 100) and Y = Quantity of Output
Draw a diagram below to show equilibrium with P on
Y-axis and Y on X-axis by finding equilibrium price...
Consider the following table that contains an economy’s aggregate demand (AD) and short run aggregate supply...
Consider the following table that contains an economy’s
aggregate demand (AD) and short run aggregate supply (SAS)
schedules.
Price level
AD ($billion)
SAS
($billion)
100
1000
850
110
950
950
120
900
1050
130
850
1200
140
800
1250
A)State the short run macroeconomic equilibrium and explain why
this is an equilibrium. If potential GDP for this economy is $1,050
billion, is there an inflationary or recessionary gap, and how
large is it?
B)
Say real GDP supplied falls by...
consider the macroeconomic AD-AS model depicting an aggregate demand curve and a short-run aggregate supply curve....
consider the macroeconomic AD-AS model depicting an aggregate
demand curve and a short-run aggregate supply curve. assume that
changes in national output also represent changes in real GDP.
a. use the AD-AS model above to explain and illustrates the
differences between demand-side measures and supply-side measures
and give an example of each. you also need to mention which markets
are embedded within each curve.
b. use the AD-AS model above to analyse and illustrate the short
run impact of an...
Aggregate Demand and Aggregate Supply Assume Broncoland has the following aggregate demand (AD) and short-run aggregate...
Aggregate Demand and Aggregate Supply Assume Broncoland has the
following aggregate demand (AD) and short-run aggregate supply
(SRAS) schedules.
Price Level
Aggregate Demand
Short-Run Aggregate Supply
120
8250
9700
115
8300
9750
110
8400
9700
105
8500
9600
100
8600
9500
95
8700
9300
90
8800
8800
85
8900
8000
80
9100
7000
Return to the original values of aggregate demand and short-run
aggregate supply. Assume the long-run full-employment level of
output (often called either potential GDP or the natural...
How to show Aggregate Demand and Short Run Aggregate Supply declining on a AD-AS diagram and...
How to show Aggregate Demand and Short Run Aggregate Supply
declining on a AD-AS diagram and where to mark the equilibrium
price
Aggregate Demand and Aggregate Supply: Assume that the economy is in short run equilibrium, and experiencing...
Aggregate Demand and Aggregate Supply: Assume that the economy
is in short run equilibrium, and experiencing a
recession
Build the Aggregate Demand/Aggregate Supply graph which
corresponds to this situation. Remember to label everything (all
curves and axis and equilibrium) and include the long-run potential
curve.
Suppose The Fed were to make an open-market purchase of $200
million in US Treasury bonds. Is this a shift or a movement along a
curve? Which curve? Graph it in such a way that...
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,...
Using aggregate demand, short-run aggregate supply, and long-run aggregate supply curves, explain the process by which...
Using aggregate demand, short-run aggregate supply, and
long-run aggregate supply curves, explain the process by which each
of the following government policies will move the economy from one
long-run macroeconomic equilibrium to another. Illustrate with
diagrams. In each case, what are the short-run and long-run effects
on the aggregate price level and aggregate output?
There is an increase in taxes on households.
There is an increase in the quantity of money.
There is an increase in government spending.
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