a) Using aggregate supply and demand curves illustrate the different effects on output of demand-pull and cost-push inflation. b) Show using an aggregate supply and demand curve diagram, how an initial increase in aggregate demand though monetary policy may have no effect on output if workers with "rational expectations" seek wage rises to compensate for the expected higher price level.
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- 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."Answer full quation otherwise don't attempt this question (i) Using aggregate supply and demand curves illustrate the different effects on output of demand-pull and cost-push inflation. (ii) Show using an aggregate supply and demand curve diagram, how an initial increase in aggregate demand though monetary policy may have no effect on output if workers with “rational expectations” seek wage rises to compensate for the expected higher price level.1) According to the Phillips Curve, as unemployment falls what happens to inflation? Why? 2) According to the Phillips Curve, as unemployment rises what happents to inflaiton? Why? 3) According to the Aggregate Supply/ Aggrgeate Demand model, if AD increases what happebs to Price Level GDP and Unemployment 4) Accroding to the AS/AD model, if AD decreases what happens to PL, GDP and unemployment? 5) According to the AS/AD model if AS decreases what happens to PL GDP and unemployment? 6) Based on your answer to #5 how would you show the decrease in AS on the Philips Curve?
- Suppose that an economy has the Phillips curvep=p-1 - O.S(u - 0.06),a) What is the natural rate of unemployment?b) Graph the short-run and long-run relationships between inflation and unemployment.c) How much cyclical unemployment is necessary to reduce inflation by S percentage points?d) Using Okun's law, compute the sacrifice ratio e.e)Inflation is running at 10 percent. The Fed wants to reduce it to 5 percent. Give Iwoscenarios that will achieve that goal.Suppose in the real business cycle model that there is a simultaneous temporary increase inboth current government spending and in the current money supply. Draw diagrams for thelabour, goods and money market, and the production function. Determine the equilibriumeffects of these two shocks occurring simultaneously on employment, output, consumption,investment, money, real wages, the real interest rate, and the price level. Provide a detailedeconomic analysis explaining your results with the aid of the diagrams.On the topic of "Stabilization Policies, Monetary Institutions and Strategies" Suppose that it there is an expected increase in the production productivity. Using AE/PC Model, explain the followings with the aid of graphs. a) What will be the impact on current inflation and on output if the central bank does not involve to the market (do nothing)? b) Assume that initially inflation equals to the central bank’s inflation target and an output gap of zero. When the shock occurs, what are the options that the central bank has to influence to the market?
- The importance of using rather than saving your ammunition in the presence of the zero lower bound. Suppose inflation is described by the accelerations Phillips curve, and that output is determined by a simple IS curveInitially, the central bank is setting the nominal interest rate at a strictly positive level: i(0) > 0. Assume(a) Suppose the central bank keeps i constant at i (0). Sketch the behavior of inflation and output over time.(b) Suppose the central bank keeps i constant at i (0) until some time when bπ(t) < 0, and then permanently reduces i to zero. Sketch the behavior of inflation and output over time.(c) Suppose the central bank permanently reduces i to zero at t = 0. Sketch the behavior of inflation and output over time.(d) Explain your results intuitively.Using the Frieman-Phelps expectations-augmented Phillips curve, if actual and expected inflationare equal to each other, thenA)workers are correctly forecasting inflation and the economy is in long run equilibriumB)the policymaker needs to pursue expansionary policy to create more output.C)in the long run workers will adjust their expectations, resulting in a business cycle in the longrun.D)the economy is in an expansion above the natural rate of output.How does high inflation lead to a recession in the country? Explain the role ofthe Government and the Central Bank to address the economic recessionproblem by using appropriate fiscal and monetary policies. Are there anypotential problems with such policies?( Answer in 1000 words)
- Monetary policy affects the economy with a lagmainly because it takes a long timea. for central banks to make policy changes.b. to change the money supply after a policydecision has been made.c. for a change in the money supply to affectinterest rates.d. for a change in interest rates to affect investmentspending.(a) Assume the economy starts at full employment. Illustrate the short-run and long-run impact of an unexpected monetary contraction using the IS-LM model, the AD-AS model, and the Phillips curve. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; v. the short-run equilibrium values; and vi. the long-run equilibrium values. Explain in words what your graphs illustrate. ) (b) Assume that people form expectations rationally and that the sticky-price model describes the aggregate supply curve in the economy. For each of the following scenarios explain whether or not monetary policy can have real effects on the economy. i. The central bank determines monetary policy at the same time that firms are setting prices, so that both firms and policymakers have all of the same information. ) ii. The central bank determines monetary policy after firms have set prices using information not available at the time prices were set. )…Suppose the Federal Reserve announced that itWould pursue contractionary monetary policy toReduce the inflation rate. Would the followingConditions make the ensuing recession more or lessSevere? Explain.A. Wage contracts have short durations.B. There is little confidence in the Fed’s determinationTo reduce inflation.C. Expectations of inflation adjust quickly to actualInflation