Show the short run effects of an increase in consumer confidence on an open economy that...

Show the short run effects of an increase in consumer confidence on an open economy that is on a flexible exchange rate. (Hint: an increase in consumer confidence will increase autonomous consumption spending). To answer this question, draw the following five diagrams:

1. The goods market

2. The money market

3. The IS-LM curves

4. The interest parity condition

5. The AS-AD curves

Label the initial and new equilibrium points on each diagram. Provide brief explanations for the changes

Expert Solution

Rahul Sunny answered 2 years ago

Trace through the short-run, intermediate, and long-run effects of an increase in consumer wealth. (Remember there are...

Trace through the short-run, intermediate, and long-run effects of an increase in consumer wealth. (Remember there are several AD determinants. Be able to do this question for any of them—things like consumer optimism, consumer pessimism, decreases in wealth, decrease in household indebtedness, increase in household taxes, decreases in household taxes, increased excess capacity of capital, decreased excess capacity of capital, increases in the cost of maintaining capital, decreases in the cost of maintaining capital, increases in gov’t spending, decreases in gov’t spending,...

Suppose an economy experiences an increase in productivity. Explain both the short-run and medium-run effects of...

Suppose an economy experiences an increase in productivity. Explain both the short-run and medium-run effects of this increase in productivity on output, employment, and the unemployment rate.

1.5 TRACE THROUGH THE SHORT-RUN, INTERMEDIATE, AND LONG-RUN EFFECTS OF AN INCREASE IN CONSUMER WEALTH. (REMEMBER...

1.5 TRACE THROUGH THE SHORT-RUN, INTERMEDIATE, AND LONG-RUN EFFECTS OF AN INCREASE IN CONSUMER WEALTH. (REMEMBER THERE ARE SEVERAL AD DETERMINANTS. BE ABLE TO DO THIS QUESTION FOR ANY OF THEM—THINGS LIKE CONSUMER OPTIMISM, CONSUMER PESSIMISM, DECREASES IN WEALTH, DECREASE IN HOUSEHOLD INDEBTEDNESS, INCREASE IN HOUSEHOLD TAXES, DECREASES IN HOUSEHOLD TAXES, INCREASED EXCESS CAPACITY OF CAPITAL, DECREASED EXCESS CAPACITY OF CAPITAL, INCREASES IN THE COST OF MAINTAINING CAPITAL, DECREASES IN THE COST OF MAINTAINING CAPITAL, INCREASES IN GOV’T SPENDING, DECREASES...

Using the AD-AS model, show and briefly explain the short and long-run effects on the economy...

Using the AD-AS model, show and briefly explain the short and long-run effects on the economy of a massive increase in government-sponsored infrastructure spending.?

In a closed economy, what happens in the short run as a result of an increase...

In a closed economy, what happens in the short run as a result of an increase in taxes? both investment and output increase. money demand and output increase. the change in the interest rate increases money demand and the change in output decreases money demand. investment decreases and output increases. the change in the interest rate decreases money demand and the change in output increases money demand. Which of the following would decrease real wages in the medium run? expansionary...

For each of the following, use an AD-AS diagram to show the short-run and long-run effects...

For each of the following, use an AD-AS diagram to show the short-run and long-run effects on output and inflation. Assume the economy starts in long-run equilibrium. a. An increase in consumer confidence that leads to higher consumption spending. b. A reduction in taxes. c. An easing of monetary policy by the Fed (a downward shift in the policy reaction function). d. Now, in addition to the increase in consumer spending, suppose that the economy experiences a favourable inflation shock...

12. Suppose the economy is in long-run equilibrium. If there is an increase in consumer spending...

12. Suppose the economy is in long-run equilibrium. If there is an increase in consumer spending due to a tax rebate at the same time that a natural disaster adversely affects the availability of production inputs within the country, then in the short-run we would expect A. the price level will rise, and real GDP might rise, fall, or stay the same. B. the price level will fall, and real GDP might rise, fall, or stay the same. C. real...

Using diagrams and the short-run AD-AS model, show the three short-run equilibrium states of the economy...

Using diagrams and the short-run AD-AS model, show the three short-run equilibrium states of the economy and illustrate (i) a recessionary gap, (ii) an inflationary gap, and (iii) full employment equilibrium.

Use the aggregate demand and supply to show the effects of an increase in consumer spending...

Use the aggregate demand and supply to show the effects of an increase in consumer spending in the short-run and in the long-run. Explain the reason for each shift

Suppose the economy is initially in the long-run equilibrium, but a drop in consumer confidence causes...

Suppose the economy is initially in the long-run equilibrium, but a drop in consumer confidence causes the AD curve to shift to the left. What will be the impact on prices and output in the short run and long run? Select the correct answer below: In the short run, and long run, both prices and output will fall. In the short run, prices will fall, but output will stay the same. In the long run, both prices and output fall....

Question