"Assume that the long-run aggregate supply curve is vertical at Y= 3,000 while the short-rur aggregate supply curve is horizontal at P = 1.0. The aggregate demand curve is Y = 2(MIP) anc M = 1,500.
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- A central bank forecasts a rise in raw material costs. The government plans to increase spending on health and education. The initial equilibrium point is shown by X on the aggregate demand, AD, and aggregate supply, AS, diagram. What would be the new equilibrium point in the short run if the forecasts prove to be accurate and the government plans are implemented? AS, AS2 general price level AS B A AD, AD AD, real output C.Suppose Chino is a closed economy. A large portion of the work force has joint astrong labor union. As such, the nominal wages of most workers are downwardrigid.Suppose most households lose their wealth in a recent clash of the stock market.How would the price and output level of Chino be affected in the short run?Explain by using the AD-AS model. Particularly, use the sticky-wage model ofaggregate supply to explain the magnitude of the effects on price and output.Consider the Keynesian sticky wage model. Assume that the economy is operating close to, but not at, its zero lower bound (ZLB). Discuss the following: 1. Could a negative shock to the IS curve make the ZLB bind? Explain and illustrate graph- ically. 2. Could a shock to current productivity z make the ZLB bind? What would need to be the sign of this shock to make the ZLB bind? 3. In the data, in most episodes where the ZLB binds (the US in the wake of the Great Recession, Japan during the 1990s, and the US during the Great Depression), output is low. Given this, would a supply shock as the reason for a binding ZLB make empirical sense? 4. Intuitively, explain why changes in government spending have a bigger effect on output at the ZLB than away from it.
- LRAS price level SRAS AD Qn real GDP Consider the diagram above and assume that an economy X is now in long run equilibrium. Suppose it is faced with two adverse supply shocks followed by a sharp wage rise. The central bank tries to counter the impacts of the shocks and rising wage by increasing aggregate demand at each case. What path will the economy follow? Draw the suitable diagram and explain the entire process.Figure 16-1 Price level A) E to A. B) C to D. C) A to E. D) C to B. E) D to C. A Save LRAS D B E Real GDP Refer to Figure 16-1. Suppose the economy is in short-run equilibrium above potential GDP and no policy is pursued. Using the static AD-AS model in the figure above, this would be depicted as a movement from U SRAS AD 3 AD₂ AD₁Price Level 0 AS₁ a ASO b c Real GDP Refer to the figure above. If aggregate supply is AS, and aggregate demand is ADo, then: a surplus of real output of gh yould f represents a price level that would result in a surplus of real output of ac f represents a price level that would result in a shortage of real output of ac f represents a price level that would result in a surplus of real output of a at any price level above g. a shortage of real output would occur occur
- Please write on the space provided what happens to each variable -- indicate whether each variable increases, decreases, or remains unchanged. Please show in the graphs the initial equilibrium, short run equilibrium, and final long run equilibrium. If possible, please provide only two graphs, one for IS-LM and one for AD-AS that show all of the equilibrium positions Suppose the economy is initially in a long-run equilibrium. Starting from this position, assume that an exogenous shock such as the Covid 19 pandemic pushes the economy away from the equilibrium. If the government chooses not to intervene in the economy, what will happen to the above variables in the long run? Please indicate in the space below what will happen in the transition from the short run back to the long run equilibrium and the final values of output and unemployment in the long run. Short-run Output __________________ Unemployment ___________________ Prices __________________…Please write on the space provided what happens to each variable -- indicate whether each variable increases, decreases, or remains unchanged. Please show in the graphs the initial equilibrium, short run equilibrium, and final long run equilibrium. If possible, please provide only two graphs, one for IS-LM and one for AD-AS that show all of the equilibrium positions Suppose the economy is initially in a long-run equilibrium. Starting from this position, assume that an exogenous shock such as the Covid 19 pandemic pushes the economy away from the equilibrium. Using the IS-LM and AD-AS framework, indicate what happens in the short run to output, unemployment, prices, interest rate, consumption, investments, and real money balances, as the economy moves from long-run equilibrium to short-run equilibrium. What economic condition is the economy in after the shock? __________________ Short-run Output ________________ Unemployment _________________ Prices…Consider the figure to the right. In the absence of a change in aggregate demand, what effect does negative economic growth have on the price level over time, other things being equal? Why? 1.) Draw a new long-run aggregate supply curve that shows the effects of negative economic growth on the economy's long-run equilibrium. Label your line 'LRAS2.' 2.) Indicate the economy's new long-run equilibrium price and level of real GDP. Label this point 'E2.' The change in the price level over time due to negative economic growth and the subsequent shift in long-run aggregate supply is known as
- n the AD-AS model, assume that an economy’s aggregate demand, denoted by QD=400−P, and SR aggregate supply, denoted by QS=P, currently intersect at price level = $200 and the full employment output level = 200. What curve would have shifted if a new short-run equilibrium were to occur at an output level of 300 and a price level of $300? Group of answer choices SRAS shifts leftward. AD shifts leftward. SRAS shifts rightward. AD shifts rightward.1. Imagine an economy, where the SRAS in terms of inflation is given by II=5+Y, where Y is output. Imagine that the long run AS curve is given by Y=2. (25 marks) a) Give the equation of the AD curve (you can take liberties), if we assume that initially, the economy is at its long-run equilibrium. Justify. b) Imagine that your chosen AD curve's intercept goes up by one unit due to an expansionary monetary policy. What will be the new final equilibrium after this change? Justify. c) What will be the equilibrium after two periods of adjustment? Justify. d) Assume that before all the changes in the economy, in the initial, long-run equilibrium, the interest rate was 4 percent. Give an IS and an LM curve that are compatible with this initial equilibrium. Justify. e) What are the IS and LM curves going to be at the very end of the adjustment process, i.e., in the new long run equilibrium? Justify.Assume an ecomy operates in the intermediate range of its aggregate supply curve. State the direction of shif for the aggregate demand curve or aggregate supply curve for each of the following changes in conditions. What is the effect on the price level? On real GDP? On employment?