4. LO 4 In Figure 3.11, after the 1981-1982 reces-sion, does the price level appear to be procyclical,countercylical, or acyclical? Why is this important? Figure 3.11 Percentage Deviations from Trend in the Price Level (the Implicit GDP Price Defla-tor) and Real GDPA correlation is difficult to discern in the figure, but the measured correlation coefficient is-0.17. There isa reverse Phillips curve.Source: Data from U.S. Department of Commerce, Bureau of Economic Analysis, O Stephen D. Williamson.Price Level2GDP-6-8194020001950197019902020196019802010YearPercentage Deviati on From Trend

Philips curve: It states that inflation and unemployment are inversely related to each other. It…

Answered: 4. LO 4 In Figure 3.11, after the…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter18: Introduction To Macroeconomics: Unemployment, Inflation, And Economic Fluctuations

Section: Chapter Questions

Problem 18P

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Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy's multiplier is 4. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? In what direction and by how much will it eventually shift?
9. Suppose Amal calculates her permanent income by adaptive expectations . Year 2020 Amal's permanent income was 38,000 , and year 2021 actual income is 41,000 . Assume that , long - run marginal to consume is 0.90 and short - run marginal propensity to consume is 0.28 . What is her consumption expenditure year 2021 ? O 36.774 O 35,040 O 40.226 O 33.454 O 34.740 O None of the above is correct
Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy�s multiplier is 3. If household wealth falls by 6 percent because of declining house values, and the real interest rate falls by 2 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level? The aggregate demand curve will shift_____ by $____ billion. In what direction and by how much will it eventually shift? The aggregate demand curve will shift_____ by $____ billion..
Suppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy’s multiplier is 4. a. If household wealth falls by 5 percent because of declining house values, and the real interest rate falls by 3 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level?
If the inflation rate is 3 percent and the nominal interest rate is 8 percent, how much is the after-tax real interest rate if the government imposes a 20 percent interest income tax? O a. 3.4 percent O b. 4 percent O c. None of the above O d. 5.4 percent.
Given the following information about each economy , either calculate the missing variable or determine that it cannot be calculated . [LO 7.2,7.3] a. If C=\$20.1 billion, I=\$3.5 billion G=\$5.2 billion, and NX=-\$1 billion, what is total income ? b. If total income is $1 trillion G=\$0.3 tr trillion , and C=\$0.5 trillion , what is I? c. If total expenditure is $675 billion, C=\$433 billion , I = $105 billion , and G=\$75 billion , what is NX ? How much are exports ? How much are imports?
For the linear IS-LM model, the goods market and the money market are in equilibrium when. Suppose that the economy is characterized by the following equations: (Y;r) = ( 1200 ; 6), Y-C-IG=0, C-Co-c(Y-T)=0,I-Io+hr=0, and kY-ur-M^s=0, which are satisfied for Co=60, lo=150, G=250, T=200, M^s=60, with the parameters c=0.8, k=0.1, h=10, and u=10. How are the equilibrium and affected, a) if "h" (the sensivity of the demand for investment to the interest rate) decreases to 5? b) if "u" (the sensitivity of the demand for real money balances to the interest rate) decreases to 5?
Suppose that the interest rate on a one-year Treasury bill is currently 1%and that investors expect that the interest rates on one-year Treasury bills over thenext three years will be 2%, 3%, and 2%, respectively. Suppose that the expectationshypothesis holds. Calculate the current interest rates on two-year, three-year, andfour-year Treasury notes.
i neeed it in word form.. not handwrittten Explain, with the aid of three separate IS-LM-FE diagrams, how a decrease in government purchases will affect real output, real interest rate and the general price level in three steps:(i) before the general price level adjusts;(ii) when the general price level is adjusting;(iii) after the price adjustment process is completed.Is the general price level increasing or decreasing during the price adjustment process? Explain the intuition of your answer with reference to the AD-AS framework.
5. Suppose that this year’s money supply is $500 billion, nominal GDP is $10 trillion, and real GDP is $5 trillion. D.) What money supply should the Fed set next year if it wants to keep the price level stable? E.) What money supply should the Fed set next year if it wants an inflation rate of 10%.
15. Suppose that the relationship between inflation rate (π) and unemployment rate (u) is described by the following equation: πt – πte = (m + z) – αut where m = 0.05, z = 0.04, and α = 2. In this economy, the authorities keep unemployment rate at 4% forever. a. If the modified Philips curve describes the relationship between π and u correctly, how should “πte” be specified? Rewrite the equation using this specification. Assume that πt–1 = 1%. Compute πt, πt+1, and πt+2. b. Do you believe the answer in part (a)? Why or why not? c. Derive the natural rate of unemployment.
Assume that the real wage in an economy is held above equilibrium.a. Graphically illustrate how an increase in technology that raises the demand for labor willchange the number of unemployed workers. Be sure to label the axes and the quantities oflabor hired before and after the technological progress.b. Explain in words what happens to the number of unemployed as a result of this change.a. The number of unemployed falls from (L – L1) to (L – L2).

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