Question
In: Economics
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 points; 1 point each)
b.) Assuming that neither the Federal Reserve, nor fiscal policymakers change any aspect of policy. What will happen to output and the price level in the long run? Output will (return to the natural level, fall further, remain below the natural level) and the price level will (end up lower than initially, end up higher than initially, end up the same as initially). (2 points; 1 point each)
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
1. Assume the U.S. economy is initially in a long-run equilibrium. Suppose the President submits a...
1. Assume the U.S. economy is initially in a long-run
equilibrium. Suppose the President submits a budget to Congress
which includes 30% funding cuts to every government program except
defense. The largest cuts will be felt by the State Department, the
EPA, NASA, and aid to foreign lands. Use the AD/AS model to
describe the effect this policy will have on inflation and real GDP
in the short run and the long run. Also, cite one externality which
should result...
Suppose that the economy is initially in long-run equilibrium as depicted in the AD-AS model. Suppose...
Suppose that the economy is initially in long-run equilibrium
as depicted in the AD-AS model. Suppose politicians believe that
the current level of output is too low and encourage the central
bank to engage in expansionary monetary policy.
a. (4 points) Discuss two ways in which the Central Bank can try
to increase the money supply. Be explicit.
b. (6 points) What are the effects of the expansionary policy in
the short run? Show in the appropriate graph(s).
c. (5...
Suppose that the economy is initially in long-run equilibrium as depicted in the AD-AS model. Suppose...
Suppose that the economy is initially in long-run equilibrium as
depicted in the AD-AS model. Suppose politicians believe that the
current level of output is too low and encourage the central bank
to engage in expansionary monetary policy.
a. (4 points) Discuss two ways in which the Central Bank can try
to increase the money supply. Be explicit.
b. (6 points) What are the effects of the expansionary policy in
the short run? Show in the appropriate graph(s).
c. (5...
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
England in 1997. Suppose the economy of England is initially in a long run equilibrium. Draw...
England in 1997. Suppose the economy of England is initially in a
long run equilibrium. Draw a Keynesian Cross (AE/AP). AD/AS
diagram, IS/LM diagram, and Money Market diagram for England. Label
Everything
Question 1: The AD-AS Model Suppose the economy is initially in long-run equilibrium, and there is...
Question 1: The AD-AS Model
Suppose the economy is initially in long-run equilibrium, and
there is a positive demand shock.
a. Describe the short-run effects of this positive demand
shock on output, unemployment,
and prices.
b. Describe how the economy will automatically move back to
the potential level of output
in the long run.
c. Illustrate your answers in point (a) and (b) using an AD-AS
graph. Show the short-run
effects and the long-run adjustments.
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....
Suppose the economy is initially in long-run equilibrium and there is a positive demand shock. Using...
Suppose the economy is initially in long-run equilibrium and
there is a positive demand shock. Using the AD-AS diagram clearly
describe the effects of the demand shock in the short run and how
the economy will adjust through the self-correcting mechanism in
the long run
Suppose the economy is initially at a long-run equilibrium. Then the central bank increases the money...
Suppose the economy is initially at a long-run equilibrium. Then
the central bank increases the money supply. Assuming any resulting
inflation is unexpected, explain any changes in GDP, unemployment,
and inflation in the short-run that are caused by the monetary
expansion. Explain your conclusions using three diagrams: (i) one
for the IS-LM model, (ii) one for the AD-AS model, and (iii) one
for the Phillips curve.
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.
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