Assume that the economy is initially operating at the natural level of output. Graphically illustrate (using the IS-LM-PC model) how the economy adjusts to a decrease in taxes both in the short run and in the medium run
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- Assume an economy is currently operating at point A. Illustrate using the IS-LM model how the policy recommendations you provide in c) will impact the economy. On your diagram indicate the new point that the policy takes the economy to and label this as point B.Illustrate an economy with a positive output gap in the IS/LM/PC model and explain the dynamics that will bring the economy back to equilibrium.Suppose the economy begins with output equal to its natural level. Then there is an increase in consumer confidence and households attempt to consume more for a given level of disposable income. a. Using the AS-AD and IS-LM models, show the effects of an increase in consumer confidence on the position of the AD, AS, IS, and LM curves in the short run and in the medium run. Precisely label all axes and curves to receive full credit. Label the short-run equilibrium and medium-run equilibrium with SR and MR, respectively. b. Explain the transition process from the short-run equilibrium to the medium-run equilibrium. In particular, discuss what makes the equilibrium changes over time. c. ] Can private saving increase in the short run when there is an increase in consumer confidence? Discuss about the necessary condition for the higher private saving in the short run.
- Consider the AS/AD model. Moreover, suppose the economy is in Short-Run and Long-Run equilibrium.a. Illustrate the economy in an (x,y) plane where rgdp is on the horizontalaxis and the price level is on the vertical axisAssume an economy is currently operating at point A and answer the following question. Q. What key policy recommendations would you make for an economy like this one that is currently operating at point A? Illustrate using the IS-LM model how the policy recommendations you provide will impact the economy. On your diagram indicate the new point that the policy takes the economy to and label this as point B.Which of the following both shift aggregate demand left? Answer a decrease in taxes and at a given price level consumers feel more wealthy a decrease in taxes and at a given price level consumers feel less wealthy an increase in taxes and at a given price level consumers feel more wealthy an increase in taxes and at a given price level consumers feel less wealthy
- If Y=C+I+G+NX, we can know that a. the economy is not operating at its potential. b. the economy is operating in long-run equilibrium. c. the economy is operating above its potential. d. the NX level has an equal amount of exports and imports. e. the NX level has more imports than exports.Q33. Draw a basic AD and SRAS graph (with LRAS constant) that shows the economy in the long-run equilibrium. Suppose that the war between Ukraine and Russia sharply increased the price of petroleum, causing the unit cost per output in the economy to increase. ***If you have any trouble to draw a graph, you can answer the question without a graph. If then, your answer should include all the necessary steps, not just the final outcome. a. Using the AD-AS model, briefly analyze the short-run effects of the war on equilibrium real GDP and the price level, either with a AD-AS diagram or without a diagram. b. How does the economy adjust back to long-run equilibrium? Briefly explain (either with a AD-AS diagram or without a diagram).Please explain how a decline in income tax rate will affect the economy in the short run using IS-LM, AS-AD and Md-Ms curves.
- Draw diagram of a typical IS-LMmodel and indicate the changes in all the variables on the diagram should there be an increase in aggregate expenditure causing a shift of the IS curve to the right ( indicate the shift in the IS curve on your diagram) Indicate where macroequilibrium will be and properly label the axes on the diagram. Briefly explain what you understand such an IS-LM model is actually reflecting in terms of macroeconomicsSuppose, initially the Australian economy is at full employment (in other words the economy is at the potential GDP). Using AD-AS model, explain how would each of the following events affect the economy both in the immediate and in the long term. A slowdown in China’s economic growth due to the sub-prime crisis in the US. b) Union wage settlements push the wage rate up. c) An increase in consumer confidence.Complete the table by indicating the change in each determinant necessary to decrease aggregate demand. Change Needed to Decrease AD Wealth Taxes Expected rate of return on investment Incomes in other countries
