Suppose that an economy begins in equilibrium at E, as depicted in the graph to the right.140-Assume that the economy follows the Classical Model assumptions.LRASa. Using the line drawing tool, draw a new aggregate demand (AD) curve reflecting an increase in the amount of money in circulation. Properly label this line.130-120-Carefully follow the instructions above, and only draw the required objects.110-b. During the rapid adjustment period (that results from the change in the AD curve), the economy will immediately tend toward a price level thatremains constant and a level of real GDP that increasesE1before quickly returning to full employment.100-c. Now that the macroeconomyin a disequilibrium, what happens in the labor market?90-O A. Unemployment decreases, which increases wages.AD80-O B. Workers unionize to negotiate higher wages so the economy continues to overproduce.OC. Wages decrease to reuduce production.70-60-O D. The government imposes a minimum wage to support the economy.101612Real GDP ($ trillions)14Price level

If there's a rise in aggregate demand, like what's experienced during inflation, there'll be an…

c. Now that the macroeconomy is in a disequilbrium, what happens in the labor market? O A. Unemployment decreases, which increases wages. OB. Workers unionize to negotiate higher wages so the economy continues to overproduce. OC. Wages decrease to reuduce production. OD. The government imposes a minimum wage to support the economy.

c. Now that the macroeconomy is in a disequilbrium, what happens in the labor market? O A. Unemployment decreases, which increases wages. OB. Workers unionize to negotiate higher wages so the economy continues to overproduce. OC. Wages decrease to reuduce production. OD. The government imposes a minimum wage to support the economy.

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

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Similar questions

In the extended version of the classical model, based on the misperceptions theory. a. Graphically show the effect of an unanticipated increase in money supply using the AS-AD model. Make sure to label the short-run equilibrium point. b. Repeat part (a). This time, assume that the public was anticipating this increase in money supply. c. Is the short-run equilibrium in part (b) point the same as in part (a). Why or why not?
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.
Question 2Explain fully how the AS/AD model is an update of the Keynesian model. Provide a graph of the equilibrium income in the Keynesian model, and compare it with a graph of the equilibrium income in the AS/AD model. Why are negative supply shocks much more harmful to an economy compared with negative demand shocks? Compare the policies which can be used to address negative demand shocks with policies to address negative supply shocks.
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 axis
Draw and properly label an AD-AS model to show Keynesian, intermediate, and neoclassical zones. Then, briefly explain the levels of unemployment, inflation and real GDP in each zone, and also confirm whether all three goals of a macro economy are being achieved in each zone. 2. Draw and properly label the AD-AS graphs or one AD-AS graph to show recessionary and inflationary gaps. Then, discuss in detail how Keynesians suggest that recessionary and inflationary gaps be closed. 3. Draw and properly label AD-AS graphs or one AD-AS graph to show recessionary and inflationary gaps. Then, discuss in detail how neoclassicals suggest that recessionary and inflationary gaps be closed.
Consider a keynesian macromodel Y=(C0+G+I) / (1-c) where C0 is autonomus consumption, G is government consumption expenditure, I is investment expenditure, c is the marginal propensity to consume. Assume constant marginal productivity of labor. If we extend the model to that investment is an inverse function of the rate of interest, what will happen to the employment if interest rates are cut? a. Indeterminate b. Neither c. Higher employment d. Lower employement.
Please note that this is a multi part quesition; thank you so much for your time and effort it means so much to me! Figure 1: Hayek’s (Classical) AD-AS Model (Image normally goes here) Part 1: Why does Hayek’s aggregate supply curve always lead to an equilibrium level of national output equal to the full-employment level of real GDP? Part2: Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayek’s idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce? Part 3: Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not?
In the AD/AS model, what prevents the economy from achieving equilibrium at potential output?
Keynesian economics predicts that if government policy makers deem current equilibrium real Gross Domestic Product (GDP) to be "too low," then an appropriate policy action would be to do nothing, because the economy is self-adjusting. raise government spending, thereby increasing aggregate demand and pushing up real Gross Domestic Product (GDP) with little or no inflationary consequences. increase taxes, thereby causing aggregate demand to increase and inducing a rise in real Gross Domestic Product (GDP) with little or no inflationary consequences. reduce the money stock, thereby causing aggregate demand to decrease and inducing a rise in fall in the price level that generates an increase in total planned expenditures.
Suppose the economy is in equilibrium, with real interest rates equal to 4% and National Savings equal to $1,600 billion. Furthermore, suppose consumption depends on interest rates. a. Using the classical model, explain, and graphically illustrate how an increase in government spending by $400 billion will affect aggregate demand and aggregate output. b. Using the classical “equation of exchange”, explain how this increase in government spending will affect the inflation rate.
Respond to the following in a minimum of 175 words: Explain the shape of aggregate demand curve. How do Classical and Keynesian economists differ in their view of the aggregate supply curve? Discuss how the economy returns to equilibrium in response to changes in aggregate demand (AD) and aggregate supply (AS) in both the short run and long run.
Please note that I have answers to parts 1 and 2. All I need you to do it help me with part 3. Thank you so much for your time and effort! Figure 1: Hayek’s (Classical) AD-AS Model (Image normally goes here) Part 1: Why does Hayek’s aggregate supply curve always lead to an equilibrium level of national output equal to the full-employment level of real GDP? Part 2: Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayek’s idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce? Part 3: Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not?