Which of the following is true in the dynamic AS-AD model? The dynamic aggregate demand curve is downward sloping because the central bank follows the Taylor principle. An increase in the natural level of output increases the long-run inflation rate. To control inflation, the central bank should increase the nominal interest rate by less than one for one in response to an increase in the inflation rate. The monetary policy rule determines the slope of the dynamic aggregate supply curve.
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- When aggregate output is below the natural rate of output, what happens to the inflation rate over time if theaggregate demand curve remains unchanged? Why?Which of the following is true in the dynamic AS-AD model? Group of answer choices The dynamic aggregate demand curve is downward sloping because the central bank follows the Taylor principle. An increase in the natural level of output increases the long-run inflation rate. To control inflation, the central bank should increase the nominal interest rate by less than one for one in response to an increase in the inflation rate. The monetary policy rule determines the slope of the dynamic aggregate supply curve.Two potential causes of inflation above target in the AD-AS model: Demand-pull inflation: This occurs when aggregate demand (AD) increases more than the long-run aggregate supply (LRAS). In the AD-AS diagram, this would be represented by a rightward shift of the AD curve. The result is a higher price level and real GDP beyond the long-run macroeconomic equilibrium level. Cost-push inflation: This occurs when the short-run aggregate supply (SRAS) curve shifts to the left due to increased production costs, such as rising wages or input prices. In the AD-AS diagram, this would be represented by a leftward shift of the SRAS curve. The result is a higher price level and a reduction in real GDP. how do i graph this information in an ad-as diagram
- True/False In the dynamic AS-AD model, a perfectly inelastic aggregate supply curve means the central bank cannot control the rate of output growth or the inflation rate.The AD/AS model is static. It shows a snapshot of the economy at a given point in time. Both economic growth and inflation are dynamic phenomena. Suppose economic growth is 3% per year and aggregate demand is growing at the same rate. What does the AD/AS model say the inflation rate should be?Consider the original AD/AS model in steady state. If the central bank fights against inflation more aggressively, explain how would inflation and short-run output respond differently to aggregate demand shock? (Hint: m-bar)
- True/False with explanation In the dynamic AS-AD model, a perfectly inelastic aggregate supply curve means the central bank cannot control the rate of output growth or the inflation rate. There are an infinite number of combinations of real interest rates and inflation rates consistent with a nominal interest rate of zero.True/False with explanation In the dynamic AS-AD model, a perfectly inelastic aggregate supply curve means the central bank cannot control the rate of output growth or the inflation rate.In the last year there has been a significant increase in the inflation rate in Canada. Use the Keynesian transmission mechanism to explain fully the impact of this increase in inflation on aggregate demand.
- Cost-push inflation is depicted as a rightward shift of the aggregate demand curve along an upsloping aggregate supply curve. True or False?The term "Long-Run", used in the context of the IS-MP-AS-AD model refers to the amount of time such that ... Group of answer choices monetary policy plays no role in the determination of aggregate output. only transitory deviations of labour productivity from its trend matters for the determination of the natural level of output. monetary policy has had enough time to respond to unanticipated events that buffer the economy and aggregate output returns to its natural level.. expectations about inflation have been fully incorporated into the wage-negotiation process.Consider the AD-AS model discussed during the lectures. Assume that the aggregate demand curve is given by Y=8-0.5 π, that the long run aggregate supply curve is given by Yp=7, that the short run aggregate supply curve is given by π = π_expect + 0.3(Y-Yp), and that the monetary rule is given byr=1+0.3 π. Suppose the economy is suffering a decrease in the potential level of output, due to some ill-designed new regulation. According to the AD- AS model, what is more suitable to offset the subsequent decline in output, an expansionary monetary policy or an expansionary fiscal policy?