According to the basic AS-AD model with a horizontal AS curve, high inflation and recession can occur in the short-run at the same time when there is: O b. an adverse supply shock with a decrease in aggregate demand. O C. a favorable supply shock with a decrease in aggregate demand. O d. a favorable supply shock without a change in aggregate demand. an adverse supply shock without a change in aggregate demand.

According to the basic AS-AD model with a horizontal AS curve, high inflation and recession can occur in the short-run at the same time when there is: O b. an adverse supply shock with a decrease in aggregate demand. O C. a favorable supply shock with a decrease in aggregate demand. O d. a favorable supply shock without a change in aggregate demand. an adverse supply shock without a change in aggregate demand.

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter26: Monetary Policy

Section26.A: Policy Disputes Using The Self Correcting Aggregate Demand And Supply Model

Problem 1SQP

See similar textbooks

Similar questions

The imaginary country of Harris Island has theaggregate supply and aggregate demand curves as Table24.3 shows. a. Plot the AD/AS diagram. Identify theequilibrium.b. Would you expect unemployment in thiseconomy to be relatively high or low?c. Would you expect concern about inflation in thiseconomy to be relatively high or low?d. Imagine that consumers begin to lose confidenceabout the state of the economy, and so ADbecomes lower by 275 at every price level.Identify the new aggregate equilibrium.e. How will the shift in AD affect the originaloutput, price level, and employment?
Assume, while an economy is in long-run equilibrium, an adverse supply shock occured, suchas energy prices have incrased. The central bank decides to accommodate this shock and restores theequilibrium quickly. What would be the effect of this policy action on inflation? Explain and illustratewith the help of an AD-AS diagram.
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.
Suppose Chino is a closed economy. A large portion of the work force has joint astrong labor union. As such, the nominal wages of most workers are downwardrigid.Suppose most households lose their wealth in a recent clash of the stock market.How would the price and output level of Chino be affected in the short run?Explain by using the AD-AS model. Particularly, use the sticky-wage model ofaggregate supply to explain the magnitude of the effects on price and output.
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.
Hi, could you help me solve this problem? It is often argued that the effect of a demand shock depends on the state of the economy. In particular, a given increase in aggregate demand may induce a larger increase in inflation (or price level) if the output gap is initially positive (output exceeds natural output) than if the output gap is initially negative. The argument is that when economy’s overall production capacity is almost fully used, firms cannot expand output much in response to an increase in demand.t Draw AD and AS curves that are consistent with these ideas and explain them briefly.
Consider a closed economy that begins with her long run equilibrium.Recently, households become more pessimistic. They tend to save more to getprepared.Adopt the sticky-wage model of the short run aggregate supply to explain theshort run effects of this shock. Also, explain the gradual long run adjustmentsover time using the sticky-wage model of the short run aggregate supply. Assume the policymakers do not accommodate the shock.
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.
a. Suppose that, ceteris paribus, the government raises taxes.Diagram the effects of such a change in the IS-LM model. Whathappens to “the” interest rate?b. Now show both the short-run and long-run effects of this changein the IS-LM model in the AS-AD model. What happens to the pricelevel and output in the short and long runs?
In the basic New Keynesian model, suppose that there is an increase in government spending. • First, suppose that the central bank does nothing (accommodates the shock). Illustrate onthe graphs and explain what will be the effects on inflation and output? • Second, suppose that economy initially has inflation equal to the central bank’s inflationtarget and an output gap of zero. What action do you expect the central bank wouldundertake? Illustrate you answer on the graph and explain. PLEASE SHOW ALL HAND WRITTEN STEPS AND WORK!
If large budget deficits cause the public to think therewill be higher inflation in the future, what is likely tohappen to the short-run aggregate supply curve whenbudget deficits rise?
If there is a oil price shock, assuming that it is a temporary phenomenon, where eventually price decline. Can anyone help me with the following qns (Using Price Level and Real GDP as the axis titles) Explain and illustrate the short-run effect of a temorary oil price shock on macroeconomic equilibrium using the AD-AS Explain and illustrate the adjustment process back to long-run equilibrium based on the following: Self-correcting mechanism (i.e., with no policy response). Active stabilisation response (i.e., with policy response). Note, there are TWO active stabilisation polices Explain both. Based on your answers in Qn 2, does the ‘divine coincidence’ hold? Where the meaning is in relation to having no trade-off between price stability and maintaining economic activity.