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- Prompt We have been discussing major macroeconomic concepts like the ADAS Model and Fiscal Policy. This is an opportunity to apply that knowledge to a real-world scenario. Choose one of the following scenarios and identify whether it is an example of a recessionary economy or inflationary economy. Next, analyze possible Neoclassical solutions for it. Then, analyze possible Keynesian solutions for it. What would the impact on the economy be in the short-run? Long-run? Scenario 1: An increase in the unemployment rate to 7.4% has occurred. Inflation has increased causing a decline in consumer spending. Exports have declined by more than $4 billion. This has caused a decrease in GDP by 3.7%. Scenario 2: An increase in consumer and government spending has occurred. This has increased GDP by 4.4%. Currently, inflation rate has increased to 1.6%. Unemployment has remained at 5.5%. Scenario 3: An increase in the stock market by 26.5% has occurred. Companies are stockpiling the earnings…1. a) Construct the AD-AS model showing AD, short run AS and long run AS intersecting at the potential output level and label this intersection Eo. Assume that this represents the Philippine economy before the pandemic. b) From the initial condition, illustrate in your graph how the pandemic affected the economy in the short run (was there a demand shock or supply shock or both)? c) Explain the reason for the shift in the curve or curves? d) Explain how the changes in the AD-AS model above have affected equilibrium real GDP, unemployment, and price level.Suppose Congress decides to reduce the budget deficit by cutting government spending. a. Use the Keynesian-cross model to illustrate graphically the impact of a reduction ingovernment purchases on the equilibrium level of income. Be sure to label: i) the axes;ii) the curves; iii) the initial equilibrium values; iv) the direction the curve shifts; andv) the terminal equilibrium values. b. Explain what happens to equilibrium income as a result of the cut in governmentspending.
- 09. The left-hand Which of the following statements is tru about the diagrams above depicting the macroeconommy in both Keynesian and Classical frameworks and a change from AEo to AE* and ADo to AD*? a) The left-hand diagrams show the effect of an increase in Aggregare Expenditures (and Aggregate Demand), where the short-run Aggregate Supply is horizontal, meaning a constant products price level. b) The right hand diagrams show the effect of an increase in Aggregate Expenditrues (and Aggregate DEmand), where short-run Aggregate Supply is vertical (constant Aggregate Quantity Supplied). c) The left-hand diagrams illustrate the Keynesian range of the shor-run Aggregate Supply curve, where Keynesian expansionary policy does not cause any inflation and thus is very effective. d) The right-hand diagrams illustrate the Classical or Monetarist range of the short-run Aggregate Supply curve, where Keynesian expansionary policy is totally dissipated in…1) Identify key assumption underlying Keynesian and Classical approaches to macroeconomic analysis. In your answer indentify how Keynesian and CLassical economist differ regarding understandign about the business cycle and how the economy should best be managed ?1. Using the AS-AD model, graph and explain the effects of Covid-19 on the U.S. macroeconomy by comparing 2019 vs. 2020. Label the years on all curves, the axis, and the equilibrium. Ignore macroeconomic policy responses, such as the CARES act. Which curves shifted which direction, and why? 2. Now introduce any macroeconomic policy response. What curves shift which direction, and why? 3. What were the equilibrium quantities for both axis?
- Consider a Keynesian business cycle theory that combines the IS-LM model with the assumption that investors become infected with optimism. Does the theory explain observed cyclical behavior of each of the following variables? Еmployrment O A. is procydlical in the data, but is countercydlical in the model. Hence the model does not match this business cycle fact. O B. is countercyclical in the data, but is procyclical in the model. Hence the model does not match this business cycle fact. OC. is countercyclical in the data, and is countercyclical in the model. Hence the model matches this business cycle fact. OD. is procyclical in the data, and is procyclical in the model. Hence the model matches this business cycle fact. Average labor productivity O A. is procyclical in the data, but is countercyclical in the model. Hence the model does not match this business cycle fact. OB. is countercyclical in the data, but is procyclical in the model. Hence the model does not match this business…6.1.What is an AD-AS model and what does such a model as per the givendiagram essentially focus on?6.2.Discuss the diagram in detail by first explaining what leads to step Step 1(representing a shift in curves on the diagram) and indicating what occursto cause shifts in some of the curves. Then discuss Step 2 (whichrepresents other macroeconomic changes) and indicate what happens toother variables when there are shifts in some of the curves as per Step 1. 6.3.What, in general, do the points of intersection between the AS and AS2curves and the AD curve show?6.4.When the LAS curve moves to the right to LRAS2, what exactly do thepoints of intersection between the AS and AS curves and the AD1 curve,indicated as point 1 and point 2, reflect on the diagram?If the economy is operating in the neoclassical zone of the SRAS curve and aggregate demand falls, what is likely to happen to teal GDP?
- 2. Let's create a simple, two-period neoclassical model, far simpler than the models of GLS Chapter 12. In this question, in period t you only use labor to make period t output, and then you decide how much of that output to convert into capital that can be used later to help make period t+1 output. That means the "representative agent" has to decide how much of period t output to consume rather than save, but there's no such choice in period t+1. After all, t+1 is the end of time. Output is made in this very simple, constant returns to scale manner, so in each period double the input creates double the output: YN, YzK You get log utility from consumption in the first period, but square root in the second period (I chose that for a reason-notice that log has stronger diminishing marginal utility than square root!). Of course, you don't like work, so extra hours of work hurt your utility: U = ln(Ct) mNt + 2(C++1) 1/2 -1 Fully develop (mathematically and graphically) the Keynesian Cross (Expenditures=Output) model. Be explicit regarding what variables are endogenous and what variables are exogenous.Please no written by hand solution Consider a scenario of a closed economy in the short run where price level is fixed. Assume that bothtaxes and money supply increase in a way that keep output constant in equilibrium (suppose that themarginal propensity to consume is less than one). Which of the following may result from the policychange?a) It will lead to an increase in investment but a decrease in consumption.b) It will result in an increase in investment but a decrease in government spending.c) It will lead to an increase in investment and private saving.d) It will decrease investment but increase in public saving.