Q1: Consider a baseline short run equilibrium where output is 16 trillion dollars, and the price level is 20. Note: In the Long Run Steady State Equilibrium, Price expectation is the same as price level & unemployment is 5% or lower. None of these are guaranteed in the short run. Usually, short run equilibrium is called an underemployment equilibrium.• Starting from the baseline, suppose COVID 19 hits this economy. If this disease only makes workers sick (everything else remaining constant) can you show how would the short run steady state equilibrium will be disrupted? As a Keynesian Macroeconomist, what policies will you propose?• You should answer each step in the following the answer 1 table. Q2: Continuing from Question 1: What will be the shape of the Phillips Curve because of the policy that you selected in Step 2 (of Question 1)? Why? Please explain in detail.•You should answer each step in the following the answer 2 table. Answer 2)StepsStep 1) What will be the shape of the Phillips Curve(Upward / Downward/ Vertical/Horizontal). I wantyou to think about what variable is measured on thehorizontal axis of the Phillips Curve Graph and whatvariable is measured in the Phillips Curve Verticalaxis. Then tell us what it means to say that PhillipsCurve is upward or downward sloping or vertical orhorizontalStep 2) Remember the policy you picked in Step 2 ofQuestion 1: It was one of these: [ (Monetary/Fiscal;Expansionary/contractionary)? As you know by nowthere are many different ways to implement Fiscaland Monetary policies. Which method did youselect? (Cutting taxes, increasing taxes, reducinggovernment expenditure, increasing governmentexpenditure for fiscal policies, & lowering reserveratio, increasing reserve ratio, OMO buying bonds,OMO selling bonds etc. for monetary policies.)] whydid this policy create adownward/upward/vertical/horizontal slopingPhillips Curve?Your Answers Answer 1StepsStep 1) What happens in the short run to short runequilibrium price level and aggregate quantity & why?(Think about which curve shifts in which direction andwhy & where is the new short run equilibrium?)Step 2) What policies would you propose now(Monetary/Fiscal; Expansionary/contractionary)? Asyou know by now there are many different ways toimplement Fiscal and Monetary policies. Whichmethod did you select? (Cutting taxes, increasing taxes,reducing government expenditure, increasinggovernment expenditure for fiscal policies, & loweringreserve ratio, increasing reserve ratio, OMO buyingbonds, OMO selling bonds etc. for monetary policies.)Step 3) Based on the policy you selected in Step 2, tellus which way will what curve shift?Step 4) What is the final objective of the policies thatyou selected in Step 2? Do you want full employment?Do you want to low inflation? You want to say whatobjectives can you attain using the policies youselected in step 2.Your Answers

Aggregate demand refers to the total demand of goods and services in a period of time. AD=C+I+G+X-M…

Answered: Consider a baseline short run…

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 5PA

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Q1: Consider a baseline short run equilibrium where output is 16 trillion dollars, and the price level is 20. Note: In the Long Run Steady State Equilibrium, Price expectation is the same as price level & unemployment is 5% or lower. None of these are guaranteed in the short run. Usually, short run equilibrium is called an underemployment equilibrium.
• Starting from the baseline, suppose COVID 19 hits this economy. If this disease only makes workers sick (everything else remaining constant) can you show how would the short run steady state equilibrium will be disrupted? As a Keynesian Macroeconomist, what policies will you propose?
• You should answer each step in the following the answer 1 table.

Q2: Continuing from Question 1: What will be the
shape of the Phillips Curve because of the policy
that you selected in Step 2 (of Question 1)? Why?
Please explain in detail.
•You should answer each step in the following the answer 2 table.

Answer 2)
Steps
Step 1) What will be the shape of the Phillips Curve
(Upward / Downward/ Vertical/Horizontal). I want
you to think about what variable is measured on the
horizontal axis of the Phillips Curve Graph and what
variable is measured in the Phillips Curve Vertical
axis. Then tell us what it means to say that Phillips
Curve is upward or downward sloping or vertical or
horizontal
Step 2) Remember the policy you picked in Step 2 of
Question 1: It was one of these: [ (Monetary/Fiscal;
Expansionary/contractionary)? As you know by now
there are many different ways to implement Fiscal
and Monetary policies. Which method did you
select? (Cutting taxes, increasing taxes, reducing
government expenditure, increasing government
expenditure for fiscal policies, & lowering reserve
ratio, increasing reserve ratio, OMO buying bonds,
OMO selling bonds etc. for monetary policies.)] why
did this policy create a
downward/upward/vertical/horizontal sloping
Phillips Curve?
Your Answers

Answer 1
Steps
Step 1) What happens in the short run to short run
equilibrium price level and aggregate quantity & why?
(Think about which curve shifts in which direction and
why & where is the new short run equilibrium?)
Step 2) What policies would you propose now
(Monetary/Fiscal; Expansionary/contractionary)? As
you know by now there are many different ways to
implement Fiscal and Monetary policies. Which
method did you select? (Cutting taxes, increasing taxes,
reducing government expenditure, increasing
government expenditure for fiscal policies, & lowering
reserve ratio, increasing reserve ratio, OMO buying
bonds, OMO selling bonds etc. for monetary policies.)
Step 3) Based on the policy you selected in Step 2, tell
us which way will what curve shift?
Step 4) What is the final objective of the policies that
you selected in Step 2? Do you want full employment?
Do you want to low inflation? You want to say what
objectives can you attain using the policies you
selected in step 2.
Your Answers

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