3. Suppose that we observe a fall in expected rate of return. Which graph most accurately shows how this would affect the aggregate demand - aggregate supply model? Note that the new curve is shown in gray. a. AD curve shifts left: b. AS curve shifts right: c. AD curve shifts right: d. AS curve shifts left:

3. Suppose that we observe a fall in expected rate of return. Which graph most accurately shows how this would affect the aggregate demand - aggregate supply model? Note that the new curve is shown in gray. a. AD curve shifts left: b. AS curve shifts right: c. AD curve shifts right: d. AS curve shifts left:

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 1QR

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Similar questions

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.
Why is the aggregate demand curve downsloping? Mention three ways of explanations to answer this. Specify how your explanation differs from the explanation for the downsloping demand curve for a single product.
Assume that (a)the price level is flexible upward but not downward and (b) the economy iscurrently operating at its full-employment output. Other things equal, how willeach of the following affect the equilibrium price level and equilibrium levelof real output in the short run?· An increase in aggregate demand.· A decrease in aggregate supply, with no change in aggregatedemand.· Equal increases in aggregate demand and aggregate supply.· A decrease in aggregate demand.· An increase in aggregate demand that exceeds an increase inaggregate supply.
18 - : If aggregate demand increases in an economy while aggregate demand is constant in the short run, which of the following statements is correct for the new equilibrium point?A) price decreases and national income increasesB) price rises national income risesC) price increases and national income does not changeD) price goes up and national income goes downE) price decreases and national income decreases.19 - : In which of the following expressions is the equation of change given correctly?A) MV=VK B) MT=PV C) MV=PT D) MP=VY E) MV=P
2. Give an example of a favourable and unfavourable shock to the aggregate supply. Use the model of aggregate demand (AD) and aggregate supply (AS) to explain the effects of such shocks. How do these shocks affect the AD-AS curves?
1.Draw Aggregate Demand, Short Run Aggregate Supply, and Long Run Aggregate Supply as if an economy is in both short run and long run equilibrium. 2. Suppose the price of oil (an input in the production of many goods) decreases. Show how this will affect the model starting from (1) above. What happens to GDP, The Price Level, and Potential Output? Is the economy in a recessionary gap or an inflationary gap? 3. Suppose that consumers feel confident about their futures. Show how this will affect the model starting from (1) above. What happens to GDP, The Price Level, and Potential Output? Is the economy in a recessionary gap or an inflationary gap? 4. Explain in detail and show graphically how the economy will naturally (No government or central bank intervention) return to long run equilibrium after the event from (3) above (don’t consider the event from part 2; only 1 and 3 are relevant to this question) . (the numbers are the numbers of the question from example in question 3 the 1…
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.
. Explain why the aggregate short-run aggregate supply curve is upward sloping? b. What is the theory of liquidity preference? c. How does it help to explain the downward slope of the aggregate demand cure?
3) Assume initially an economy is at its long run equilibrium. Then, consumerconfidence in this economy increases. What will happen to real GDP and aggregate price level inthe short run equilibrium following the increase in consumer confidence? Use the AggregateDemand – Aggregate Supply model to answer the question.
2. Explain the determinants of the aggregate demand (AD) and describe how the AD curvewill shift when one of these determinants changes.
1. In the following table, determine how each event likely effects potential output (a.k.a., long-run aggregate supply). Direction of Potential Output Shift Event Left Right No Shift The government allows more immigration of working-age adults. For environmental and safety reasons, the government requires that the country’s nuclear power plants be permanently shut down. An investment tax credit increases the rate at which firms acquire machinery and equipment. 2. In the following table, determine how each event affects the position of the aggregate demand curve. Direction of AD Curve Shift Event Left Right No Shift A decrease in consumer confidence (suggests people believe a contraction/recession coming) A decrease in individual income tax rates An increase in the value/price of housing 3. What effect would an increase in aggregate demand…
1. In the following table, determine how each event likely effects potential output (a.k.a., long-run aggregate supply). Direction of Potential Output Shift Event Left Right No Shift The government allows more immigration of working-age adults. For environmental and safety reasons, the government requires that the country’s nuclear power plants be permanently shut down. An investment tax credit increases the rate at which firms acquire machinery and equipment. 2. In the following table, determine how each event affects the position of the aggregate demand curve. Direction of AD Curve Shift Event Left Right No Shift A decrease in consumer confidence (suggests people believe a contraction/recession coming) A decrease in individual income tax rates An increase in the value/price of housing 3. What effect would an increase in aggregate demand…