Part 1: Long-Run Self Adjustment- Draw a correctly labeled graph of aggregate demand, aggregate supply, and long-run aggregate supply. Start each graph at full employment. Show what happens in both the short-run and the long-run if the economy is given time to self-adjust. 1. Consumer spending increases as consumers confidence increases 2. Congress passes a bill dramatically reducing government spending

Part 1: Long-Run Self Adjustment- Draw a correctly labeled graph of aggregate demand, aggregate supply, and long-run aggregate supply. Start each graph at full employment. Show what happens in both the short-run and the long-run if the economy is given time to self-adjust. 1. Consumer spending increases as consumers confidence increases 2. Congress passes a bill dramatically reducing government spending

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter17: The Trade-off Between Inflation And Unemploy

Section: Chapter Questions

Problem 1TY

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K How does expected inflation occur? Use the graph to answer this question. Draw the AD curve when it is correctly expected that the inflation rate will be 15 percent a year. Label it. Draw the SAS curve when a change to the money wage rate occurs that correctly anticipates the increase in aggregate demand. Label it. Draw a point at the new equilibrium. As we move up along the LAS curve, the O A. real wage rate is increasing OB. real wage rate is decreasing OC. real wage rate is constant O D. money wage rate is constant 130- 120+ 110- 100- Price level (GDP deflator, 2007 = 100) LAS 90- 100 SAS 1200 AD 800 1000 1050 1100 1150 1200 1250 1300 1350 1400 Real GDP (billions of 2007 dollars) >>> Draw only the objects specified in the question.
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…
The economy starts out on the curves AD, and SAS- Price level (GDP deflator, 2009 = 100) Suppose that people expect deflation (a falling price level), but aggregate demand remains at AD 240 LAS Show what happens to the short-run and long-run aggregate supply curve. Label the new curve. 200- SASO Draw a point at the new macroeconomic equilibrium. 160 When it becomes obvious to everyone that the deflation is not going to occur, 120 120 O A. long-run aggregate supply increases O B. the money wage rate falls further OC. aggregate demand decreases OD. the money wage rate rises and the short-run aggregate supply curve returns to its original position 80 AD 40- 10 10 11 12 13 14 Real GDP (trillions of 2009 dollars) 15 >>> Draw only the objects specified in the question.
1. Suppose that the oil price sharply increased for a while, which increased production costs, causing an adverse supply shock. A. Use the AD-AS model to show the effects on output and the price level in both the short- run and long-run. B. Show the adjustment process of the economy from the short-run to the long-run. C. What is the effect on unemployment in short-run and long-run? D. Can policymakers do something to accommodate this shock? Would the outcome be different in this case?
2. Show a AD-AS graph inflation in the short run and the shift in the SAS necessary to eliminate it.
Price Level Juous 17-18. Long-run AS Y₂Y₁ Short-run AS AD Quantity of Real Output Suppose the economy is operating in a recession such as point B in the graph. If policymakers allow the economy to adjust to the long-run natural level on its own, a. people will raise their price expectations and the short-run aggregate supply will shift left b. people will reduce their price expectations and aggregate demand will shift right c. people will raise their price expectations and aggregate demand will shift left d. people will reduce their price expectations and the short-run aggregate supply will shift right
I Graphical 1. Economic analysis: Please mark the original AD as AD, and AS as AS. Show (wherever applicable) the shift and mark the new AD as AD, and/or AS as AS₁. (a) Short-run impact of a positive wealth shock (b) Short-run impact of an increase in input costs [No need to show long-run AS curve] [No need to show long-run AS curve] 2. Policy analysis: Please mark the original AD as AD, and AS as AS- Show (wherever AD as AD, and/or AS as AS₁. applicable) the shift and mark the new (a) Short- and long-run impact of OMO sale (assume inflationary gap before the sale] (b) Short- and long-run impact of Trump's tax cuts (assume initial equilibrium at potential GDP] 3. Show the impact of the following on the equilibrium interest rate and money in the money markets (a) Economic growth (b) Higher discount rate by the Fed
Suppose the economy is in a long-run equilibrium.a. Draw a diagram to illustrate the state of theeconomy. Be sure to show aggregate demand,short-run aggregate supply, and long-runaggregate supply.b. Now suppose that a stock market crash causesaggregate demand to fall. Use your diagramto show what happens to output and the pricelevel in the short run. What happens to theunemployment rate?c. Use the sticky-wage theory of aggregate supplyto explain what happens to output and the pricelevel in the long run (assuming no change inpolicy). What role does the expected price levelplay in this adjustment? Be sure to illustrate youranalysis in a graph.
Aggregate Price Level Assume that the United States government introduces an expansionary monetary policy, increasing the money supply in the market. Using the graph below, demonstrate the long run effect on aggregate demand and short run aggregate supply. Then, answer the question to the right. LRAS Real GDP SRAS AD In the classical model of the price level, what is the long run effect of an increase in the money supply on real GDP? it increases GDP it decreases GDP it has no effect on GDP
“Households decide to save a larger share of their income will shift aggregatedemand curve upward because higher saving will boost investment which inturn increase the demand for investment goods.” Do you agree with thestatement? Explain your choice. e. Graphically derive short run Phillips curve with the help of aggregate demand and supply model.
Price Leve 100 90 80 70 60 50 40 30 0 AD AD₁ 80 160 240 320 400 480 560 640 720 800 Real GDP (billions of dollars) Instructions: Enter your answer as a whole number. If you are entering a negative number include a minus sign. a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? -320 billion b. If the MPC is 0.8, how much do taxes need to change to shift aggregate demand by the amount you found in part a? 80 billion Suppose instead that the MPC is 0.6. c. How much does aggregate demand and taxes need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $1 ] billion and taxes need to change by $1 billion.
In the diagram, the economy has Aggregate price level LRAS SRAS, P, Aggregate Demand Yp Y, Real GDP An inflationary gap, so in the long run wages will fall, causing AD curve ti shift to the left. An inflationary gap, so in the long run wages will rise, causing the SRAS curve to shift to the left. O A recessionary gap, so in the long run wages will fall, causing the AD curve to shift to the left. O A recessionary gap, so in the long run wages will fall, causing the SRAS curve to shift to the right.