multiple choice questions Multiple Choice Questions1. In the short run, when prices are partially sticky, the observed general equilibriumrelationship between the output gap and prices is best described as:A. There is no relationship between output gap and prices.B. The relationship between output gap and prices depends on the type of shocks affectingthe economy.C. A positive output gap will always be associated with an increase in prices.D. None of the above is correct.2. Using the AS-AD model with partial sticky prices, what is the effect on labour N₁ andwages Wt of an increase in At?A. Both N, and we increaseB. Both N and Wt decreaseC. Nt increases and we do not changeD. There is not enough information to conclude whether N and we increase or decrease3. Which statement is correct?A. The financial accelerator amplifies the output effects of supply shocksB. The financial accelerator amplifies the output effects of demand shocks.C. The financial accelerator amplifies the price effects of supply shocksD. A & B4. In the New-Keynesian model where government expenditure is financed through taxationonly, if government expenditure increases by 100, which of the following is true?A. Income will increase by 100 as the fiscal multiplier is 1.B. Income will increase by more than 100 as the fiscal multiplier is greater than 1.C. Income will not change as the increase in government expenditure would crowd outprivate consumption.D. Income will increase, but we can't say by how much.5. What are the implications of the ZLB in our New-Keynesian model?A. Negative shocks are amplified by the flat shape of the LM curve, in which real interestrates cannot go below to accommodate demand.B. Negative shocks are mitigated by the flat shape of the LM curve, in which real interestrates cannot go above π+1to accommodate demand.C. Negative shocks are amplified by the flat shape of the LM curve, in which real interestrates cannot go below -π+1 to accommodate demand.D. Negative shocks are amplified by the vertical shape of the LM curve, in which real interestrates cannot go below -+₁to accommodate demand.

ZLB stands for zero lower bound, referring to the lower limit of nominal interest rates, set to…

1. In the short run, when prices are partially sticky, the observed general equilibrium relationship between the output gap and prices is best described as: A. There is no relationship between output gap and prices. B. The relationship between output gap and prices depends on the type of shocks affecting the economy. C. A positive output gap will always be associated with an increase in prices. D. None of the above is correct.

1. In the short run, when prices are partially sticky, the observed general equilibrium relationship between the output gap and prices is best described as: A. There is no relationship between output gap and prices. B. The relationship between output gap and prices depends on the type of shocks affecting the economy. C. A positive output gap will always be associated with an increase in prices. D. None of the above is correct.

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 4SQP

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In Figure 1 above,how does the AD-AS model reflect the idea that governments cannot increase real GDP beyond an economy’s equilibrium level that the free-market economy is able to produce? Explain your answer. 2.1. In Figure 2 above, what are the factors that may cause the aggregate demand to shift from AD to AD1? What is the difference between demand pull inflation, cost push inflation, and recession? 2.2. Define and describe: the aggregate supply (AS) curve in the immediate short run. the aggregate supply (AS) curve in the short run. the aggregate supply (AS) in the long run. 3. Listen: Podcast: The Economics of Fiscal Stimulus - Econ EveryDay The Covid-19 pandemic shifted the aggregate supply and aggregate demand curves to the left. Did that increase or decrease real GDP, employment, and inflation rate? Explain your answer.
Supply shocks and demand management Assume that the economy starts at a natural level if output. now suppose thee is an increase in the price of oil. a) In a AS-AD diagram show what happens to output and the price level in the short run and the medium run b) what happens to the unemployment rate in the short run? in the medium run?
Suppose the economy is at its long- run equilibrium when there is a sudden increase in wealth. Using IS-MP, AD-IA answer compare the following variables to their initial long-run equilibrium. What happens to short-run real GDP? a) goes up b) goes down c) stays the same d) unknowable What happens to short-run real interest rates? a) goes up b) goes down c) stays the same d) unknowable What happens to short-run inflation? a) goes up b) goes down c) stays the same d) unknowable What happens to long-run real interest rates? a) goes up b) goes down c) stays the same d) unknowable What happens to long-run inflation? a) goes up b) goes down c) stays the same d) unknowable
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a. write down the expressions for the AS and AD curves and interpret the expressions. what is the intuition behind the two curves? what must be true of the model parameters and variables in the long run equilibrium? b. analyze the effects of an oil supply shock that causes a temporary increase in the inflation, using the three-equation model. assume that the shock lasts for one period and then assumes the value 2%. describe the mechanisms that bring the economy back to long-run equilibrium. what happens to aggregate supply? c. consider an economy that starts out in steady state when the central bank decides to make the inflation target more ambitious. analyze the effects of a decrease in the inflation target from m to mt. explain the mechanism behind the adjustment to the new steady state.
Assume that the central bank has an inflation target and it follows an interest rate rule. The economy is operating at the medium run equilibrium. a) Draw a neat diagram showing the AS-AD curves at the medium-run equilibrium. Carefully label the curves, the axes, and the significant points on the axes (Y, , , Y etc.). b) Explain in words why the AS curve slopes upward, and why the AD curve slopes downwards. Now suppose new digital technologies developments (think of Google, Amazon, Netflix, etc) occur that lead to a permanent decrease in the degree of competition in the economy - that is, an aggregate increase in firms' markup "m" on marginal cost. c) What will be the short run impact of these developments on the economy? Use an AS-AD diagram to explain your answer. (d) What will be the effect of these developments on the labour market in the medium run? Use a wage-setting and price-setting (WS-PS) diagram to explain what will happen to the natural rate of unemployment and…
How is pressure for inflationary price increases shown in an AD/AS model?
Explain, using the AD-AS model, the effect of an increase in investment in themacroeconomy on the equilibrium price level and the equilibrium level of output.(10)Q.1.2 Can demand management policies be used to combat stagflation? Explain youranswer.(2)Q.1.3 Identify three ways in which aggregate supply could decrease in an economy.
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.
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