Consider the IS-LM AD-AS model (with adaptive expectations). Assume that the economy is initially in a long-run equilibrium where output is at its natural level and prices are as expected by workers. (c) What is the impact of an adverse supply shock which forces firms to increase their markups on the evolution over time of the interest rate, the out- put level and the price level.' Carefully explain the economics behind these dynamics. What is the long term effect of the adverse aggregate supply shock

Consider the IS-LM AD-AS model (with adaptive expectations). Assume that the economy is initially in a long-run equilibrium where output is at its natural level and prices are as expected by workers. (c) What is the impact of an adverse supply shock which forces firms to increase their markups on the evolution over time of the interest rate, the out- put level and the price level.' Carefully explain the economics behind these dynamics. What is the long term effect of the adverse aggregate supply shock

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter16: Monetary Policy

Section16.A: Policy Disputes Using The Self Correcting Aggregate Demand And Supply Model

Problem 3SQP

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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.
10. Which of the following are reasons why the short-run Aggregate Supply curve shown in the right-hand diagrams may be vertical? a) The economy at this level of real GDP would be operating beyond the full-employmetn level. b) Inflationary expectations have set-in so, the owners of resources are acting on these inflationary expectations and insisting on higher resource prices in anticipation of future products price inflation. c) Short-run Aggregate Suply in the Classical model is always constant. d) All the above e) Only (a) and (b) are true. f) None of the above.
Consider a modified aggregate supply function which takes account for the emergence of random business cycle shocks (ce) with Ele] - O in the sense that Ye - R - R ++ 6 The loss function is the same as in exercise 1: L-(n - k)* +(m)? Notation: €: random shock; E[e,]: expected value of e; b: constant parameter, all other variables see Exercise 1. Having considered the scenario above complete the following tasks: a) Derive the central bank's preferred inflation rate and explain.
2. Consider the IS-LM model derived in class. Suppose the economy of Economica is initially at the general equilibrium. This year, Economica's economy is hit by a negative oil price shock, i.e., oil prices in Economica increase dramatically. a. Explain and show graphically how an oil price shock affects the labor, goods, or the asset market b. Explain and show graphically how an oil price shock affects the short-run equilibrium in the IS-LM model c. Explain and show graphically how an oil price shock affects the general (long-run) equilibrium in the IS-LM model
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 IS-LM AD-AS model (with adaptive expectations). Assume that the economy is initially in a long-run equilibrium where output is at its natural level and prices are as expected by workers. (b) What is the impact of an increase in the money supply on the evolution over time of the interest rate, the output level and the price level. Carefully explain the economics behind these dynamics. In the long-run, does the in- crease in the money supply have any real (as opposed to nominal) effect on the economy?
If there is a oil price shock, assuming that it is a temporary phenomenon, where eventually price decline. Can anyone help me with the following qns (Using Price Level and Real GDP as the axis titles) Explain and illustrate the short-run effect of a temorary oil price shock on macroeconomic equilibrium using the AD-AS Explain and illustrate the adjustment process back to long-run equilibrium based on the following: Self-correcting mechanism (i.e., with no policy response). Active stabilisation response (i.e., with policy response). Note, there are TWO active stabilisation polices Explain both. Based on your answers in Qn 2, does the ‘divine coincidence’ hold? Where the meaning is in relation to having no trade-off between price stability and maintaining economic activity.
QUESTION 8 In the model: Y=v - B(r,-r)- we, + e T,- m + a(v, -v;)– yAe, + e" !! What is the expected short-run effect of a positive demand shock (6, > 0) on output? O positive O negative O neutral O ambiguous
Use the AS-AD model to analyze the impact on the U.S. economy as a result of each of the listed events. Mention if AD and/or AS shift and in which direction. Also explain what the country will experience with respect to increase or decrease in short-run equilibrium real GDP and increase or decrease in the equilibrium price level. For each event, assume that the economy is originally in a full- employment equilibrium, mention if in the new equilibrium there is a recessionary gap or an inflationary gap. A) Congress raises income taxes. B) The Federal Reserve decreases the target for the federal funds rate. C) Migration to the US increases the working- age population. DJ Appreciation in the international value of the dollar.
1. Assume that there is economy with increasing of government expenditure and interest rate and aggregate price level are endogenous. Please use graph to show the increasing by using: b) IS-LM model c) AD-AS model with the horizontal aggregate supply curve in the short run (assume both cases initially started from natural level of income)
Arrange these statements in sequence to explain why the short run aggregate supply (SR AS) curve slopes upward. Suppositions as a starting point Conclusion as to why the SR AS curve slopes upward Answer Bank At the macroeconomic level, the increase in aggregate demand (AD) corresponds to a shift in the firms' demand curve, whereas the firms'supply curve remains fixed. Since customers are demanding more of the firms'product, the firms' demand curves increase, which increases prices and output. The firms'willingness to supply more output at a higher price at a micro level shows a positive relationship, which is then also reflected at the macro level with an upward sloping SR AS curve.