Question THREEa) Distinguish between the classical and theKeynesian aggregate supply curveb) Discuss the sticky wage model of aggregatesupply curvec)Suppose that the economy has the followingPhillips curveT = T.1 – 0.5 (u-0.06)i. What is the natural rate of unemployment?ii. How much of cyclical unemployment isnecessary to reduce inflation by 5 percent points?iii. Using Okun's law, compute the sacrifice ratioiv. Inflation is running at 10 percent. The centralbank wants to reduce it to 5 percent. Give twoscenarios that will achieve that goal

Aggregate supply curve: it shows the relationship between the amount of output supplied by firms at…

Answered: a) Distinguish between the classical…

Business

Economics

a) Distinguish between the classical and the Keynesian aggregate supply curve

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter20: Monetary Policy

Section20.A: Policy Disputes Using The Self Correcting Aggregate Demand And Supply Model

Problem 3SQP

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question 3Consider the AS-AD and three-equations models of a closed economy discussed in the course.(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, i.e. in the steady state?(b). Analyse the effects of an oil supply shock that causes a temporary increase in 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 demand?(c). Consider an economy that starts out in steady state when the central bank decides to make the inflation target more ambitious. Analyse the effects of a decrease in the inflation target from ? to ??. Explain the mechanisms behind the adjustment to the new steady state.
1.) The Keynesian AD-AS model describes what happens with price levels when aggregate demand increases. Could you find any evidence from the last ten-fifteen years that might support AD-AS model descriptions of demand-pull inflation, cost-push inflation, and recession? For example, you could find data on the GDP’s of any two countries from 2000 to 2017 to support your findings. 2.) In macroeconomics, the immediate short run is known as a length of time when both input prices and output prices are fixed. In the short-run, input prices are fixed but output prices are variable. In the long run, input prices and output prices can vary. What happens in the immediate short-run when AD falls from AD to AD2 to the price level and output? What happens in the short-run when AD falls from AD to AD2 to the price level and output? What will happen in the long-run?
I need solution for..this question 1.Why does IS curve slope downward? 2.why does LM curve slope upward? 3. Explain the prominent models of short run aggregate supply curves? 4. Explain the workers-misperception model briefly? 5. Explain Irvin Fischer's model briefly? 6. Explain Modigliani's life cycle Hypothesis model briefly?
5 An economy experiences a decade in which the quarterly unemployment rate fluctuates between 2.5% and 3.5%. Due to a number of shocks the economy gets into problems and the unemployment rate increases by 0.5%-point per quarter (So it become 4.0% in Q1, 4.5% in Q2, 5% in Q3 and 5.5% in Q4, also in the second year after the shock the unemployment rate continues to increase. This experience is consistent with: a locally and globally stable equilibrium a locally and globally unstable equilibrium a locally unstable and globally stable equilibrium a locally stable and globally unstable equilibrium
The economy of Country X has an actual unemployment rate that is less than the natural unemployment rate. a) Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following: Current Price Level labeled PL1 Current Real Output labelled Y1 Full employment output labeled Yf b) Suppose that investment spending on plant and equipment increases. On your graph in part (a), show the effect of the increase in investment spending on the equilibrium price level and real output in the short run.
1. In the RBC (Real Business Cycle) model, if businesses react to a pessimistic outlook and decrease spending, the model predicts a. the aggregate demand curve shift left. b. equilibrium inflation rates fall. c. no change in long run growth rates. d. a&b only e. all of the above 2. In the RBC (Real Business Cycle) model, if you observe unemployment levels rising, what is the likely cause? a. A negative real shock b. A negative aggregate demand shock c. A negative SRAS shock d. A&B only e. None of the above 3. Irrigation technology that changes how farmers utilize rainfall a. will have no effect on economic growth if rain fall levels do not also increase. b. represents a positive aggregate demand (AD) shock. c. may lead to higher levels of productivity growth and lower levels of unemployment. d. represents a negative real shock and will increase unemployment. e. None of the above.
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 the ASAD model of a closed economy with zero ongoing inflation and workers misperceptions. Firms are perfectly competitive, produce output with diminishing marginal returns to labour and have perfect foresight over the price level. Workers, instead, expect zero inflation in each period. At time zero, the economy is in the potential equilibrium. There is a negative shock on aggregate demand – for example, a permanent fall in desired autonomous consumption at time t = 1. What are the effects of the shock on the equilibrium real wage in the short and in the medium run?
Suppose that a rise in consumer spending causes an expansion. 1. On the following graph, shift a curve or adjust the point to reflect the short-run effect of the rise in consumer spending. (Please use the image attached) 2. In the short run, inflation rises? falls? and unemployment rises? falls?. Now suppose that over time, expected inflation changes in the same direction that actual inflation changes. 3. After the expansion is over, the economy faces a worse? better? set of inflation–unemployment combinations.
The economy of Moneyland has an actual unemployment rate that is less than the natural unemployment rate. (a) Draw a correctly labeled graph of the long-run aggregate supply, short-run aggregate supply, and aggregate demand curves, and show each of the following. (i) Current price level, labeled PL1 (ii) Current real output, labeled Y1 (iii) Full-employment output, labeled YF (b) Suppose that investment spending on plant and equipment increases. On your graph in part (a), show the effect of the increase in investment spending on the equilibrium price level and real output in the short run. (c) Identify one fiscal policy action the government of Moneyland can use to restore full employment. (d) Assume instead that the government of Moneyland decides not to take any policy action. Will short-run aggregate supply increase, decrease, or stay the same in the long run? Explain.
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.
A. What assumptions did Thomas Sargent make when he claimed that inflation is always and everywhere a fiscal phenomenon?" B. Why is it appropriate in the book's short-term model for the author to use the Phillips Curve as an Aggregate Supply curve? Does it capture the working of the labor market as well as an AS curve based, say, on sticky wages? C. Provide an example of the book's short-run model being based on "microfoundations."