EconomicsQuestion 91Consider the IS curve YE ā – b(R – F)|, where b = 2, = 1/5, and R – ř = 0.01.If there is a positive demand shock where the economy goes from ā = -0.01 to ā = 0.0, then short-run output changes by percentage points (enter a negative number for a fall in short-run outputand a positive number for a rise in short-run output).

The IS-LM model is a macroeconomic framework that illustrates the interaction between real output in…

- 7), where b = 2, = 1/5, and R - T = 0.01. ock where the economy goes from ā = -0.01 to ā = 0.0, then short- ercentage points (enter a negative number for a fall in short-run output in short-run output).

- 7), where b = 2, = 1/5, and R - T = 0.01. ock where the economy goes from ā = -0.01 to ā = 0.0, then short- ercentage points (enter a negative number for a fall in short-run output in short-run output).

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter9: An Introduction To Basic Macroeconomic Markets

Section: Chapter Questions

Problem 3CQ

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Assume that the economy is initially in equilibrium at potential GDP. Then suppose that the economy is hit simultaneously with a positive aggregate demand shock and a negative aggregate supply shock: There is a large increase in U.S. exports to Europe and a large increase in oil prices. A: Use an AD–AS graph to illustrate the initial equilibrium and the short-run equilibrium after the shocks. Do we know with certainty whether in the new equilibrium the output level will be higher or lower than potential GDP? B: Suppose that the Fed decides not to intervene with monetary policy. Show how the economy will adjust back to long-run equilibrium. C: Now suppose that the Fed decides to intervene with monetary policy. If the Fed’s policy is successful, show how the economy adjusts back to long-run equilibrium.
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