AS B P - AD2 A Po · AD1 Yo Y1 Y Output 25. Refer to the above Figure, if the economy is currently on AD2, what kind of policy/policies may have been undertaken to shift the aggregate demand curve to AD,? A. An increase in government expenditure. B. An increase in the tax rate. C. An increase in the required reserve ratio. D. Both B.) and C.), Price level

AS B P - AD2 A Po · AD1 Yo Y1 Y Output 25. Refer to the above Figure, if the economy is currently on AD2, what kind of policy/policies may have been undertaken to shift the aggregate demand curve to AD,? A. An increase in government expenditure. B. An increase in the tax rate. C. An increase in the required reserve ratio. D. Both B.) and C.), Price level

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter22: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 1P

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8a. Assume that an economy is at equilibrium at its potential GDP at $10 trillion and aprice level of 100. What would be the short-run impact of a significant fall in consumer confidence about the future? Provide an AD/AS model to support your answer. b. What policy would you recommend to the chairperson of the Federal Reserve? Be specific. Show the effect of this policy on your graph part a. c. What are the major goals of the Fed's monetary policy?
2. Find an article in a major business publication, (for example, the Wall Street Journal, Barron's, the Harvard Business Review, Forbes) that describes an event that may affect the U.S. price level and real GDP. • Draw an initial set of AD and AS curves and determine which curve(s) will be affected and in which direction it will shift as a result of the AD/AS factors or policies. What are the factors or policies? Predict what will happen to price level and real GDP and explain your answer. All graphs must be properly labelled. Each axis must be correctly labelled, and the horizontal axis must indicate the nature of the graph itself.
Illustrate each of the following situations with a graphshowing AS and AD curves, and explain what happensto the equilibrium values of the price level and aggregateoutput:a. A decrease in G with the money supply held constant bythe Fedb. A decrease in the price of oil with no change ingovernment spendingc. An increase in Z with no change in governmentspendingd. An increase in the price of oil and a decrease in G
Look at Figure 2. Assume this aggregate demand diagram represents an economy with government, where: a = exogenous consumption b = the marginal propensity to consume t = the tax rate |= investment G = government spending Y = income Figure 2 Aggregate demand AD, AD. 45° Income What is the equation for the aggregate demand schedule ADo? Select one: O ADO = b+ a(1 - t)G +1+ Y O ADO = a + b(1 – 1)Y + 1+ G O ADO = a + b(1 - t) I+ Y+ G O ADO = b+ a(1 – 1)Y + /+ G Next page > ( Previous page PHILIPS
The aggregate demand curve slopes downward because whenthe price level is lower, people can afford to buy more andaggregate demand rises. When prices rise, people can afford tobuy less and aggregate demand falls. Is this a good explanationof the shape of the AD curve? Why or why not?
2. The graph below shows the AD-AS model in short-run equilibrium at price level Po and level of real GDP at Yo. Label the following: AD, SRAS, LRAS, Po and Yo. P Y A. Is this SR equilibrium a recessionary gap or an inflationary gap? Why is the undesirable? B. Assume Congress and the President decide to act. How would you suggest they alter each of the following (1,↓↓, or no change)? - Taxes - Transfer Payments -Government Spending C. Show the effects of these changes in the space above. Assume this intervention brings the economy back to potential GDP. D. As the economy moves from Yo to Yp, what happens to the following (1,↓, or no change)? - Real GDP - the unemployment rate - The price level - the rate of inflation
18. Use the AD/AS model to illustrate the following. Draw 6 graphs by hand. Show how the AD or the AS curve shift and in what direction (left or right). Also state what happens to equilibrium real GDP (Y), employment, and the equilibrium price level. [Note: Use the SRAS curve, not the LRAS.] a. an increase in government spending and/or transfer payments b. restrictive fiscal policy c. expansive monetary policy d. increase in investment according to Keynesians e. increase in investment according to supply-side economists f. a stock market crash
When the economy is experiencing a recession, why would aneoclassical e conomist be unlikely toargue for aggressive policy to stimulate aggregate demandand return the economy to full employment? Explain your answer.
Other things equal, what effects would each of the following have on aggregate demand or aggregate supply? In each case use a diagram to show the expectedeffects on the equilibrium price level and the level ofreal output.a. A reduction in the economy’s real interest rate.b. A major increase in federal spending for healthcare (with no increase in taxes).c. The complete disintegration of OPEC, causing oilprices to fall by one-half. d. A 10 percent reduction in personal income taxrates (with no change in government spending).e. A sizable increase in labor productivity (with nochange in nominal wages).f. A 12 percent increase in nominal wages (with nochange in productivity).g. A sizable depreciation in the international value ofthe dollar.
Explain what is meant by aggregate demand. Then how to derive the AD curve and why the AD curve has a negative slope. Explain using a graph how the effect of an increase in money supply on the AD curve. In the same way, also explain the effect of an increase in government purchase on the AD curve.
Use the following graph to answer the next question. AS, Price Level CF E Multiple Choice AS O. A B C Real Domestic Output A shift of the aggregate demand curve from AD₁ to ADo might be caused by a(n) AD₁ Increase in aggregate supply. AD decrease in the amount of output suppiled. Increase in Investment spendling. decrease in net export spending.
Assignment 8 Chapter 12 1. Determine whether the AD or AS curve with shift wwith each scenario below. Each situation is independent of each other. a. A decrease in the personal income tax rate b. An increase in Government Spending c. Decrease in Resource Prices AD or AS AD or AS AD or AS d. Increase in Subsidies for Businesses e. Decrease in Interest Rates AD or AS AD or AS Assignment 9 Chapter 13 1. What is the shape of the Classical Aggregate Supply Curve? 2. What is the difference between an Expansionary (inflationary gap) Gap and Contractionary (Recessionary) Gap? Assignment 10 Chapter 14 1. What are the 3 functions of Money? 2. What are the 2 Money Aggregates and what is included in each one?