4. Suppose there is a decrease in Ot.a) Analyse the short-run effects (on prices, wage, employment, interest rate,and output gap) of this shock. Use diagram to support your answer.b) Propose an appropriate fiscal or monetary policy response to this shockand describe the effects of that policy response on output, prices, interest rate,employment and wage rate.c) Compare the short-run effects (on prices and output) of the shock in twocountries that only differ in their degree of price rigidityy (P = P + y(Y₁ - Y')).YtIn economy A, menu costs are negligible and y =Y = 100- In economy B, menu costs are large and y-= 0.1

Answered: Image /qna-images/answer/e31db441-77e2-4df7-9c80-3a70ece5e2fe.jpg

Dose an appropriate fiscal or monetary policy response to Scribe the effects of that policy response on output, prices ment and wage rate. pare the short-run effects (on prices and output) of the s Les that only differ in their degree of price rigidity = P + y ( Yt - Y ₂² ) ). Ɔnomy A, menu costs are negligible and y Onomy B, menu costs are large and y = 0.1 100

Dose an appropriate fiscal or monetary policy response to Scribe the effects of that policy response on output, prices ment and wage rate. pare the short-run effects (on prices and output) of the s Les that only differ in their degree of price rigidity = P + y ( Yt - Y ₂² ) ). Ɔnomy A, menu costs are negligible and y Onomy B, menu costs are large and y = 0.1 100

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: The Short-run Trade-off Between Inflation And Unemployment

Section: Chapter Questions

Problem 4PA

See similar textbooks

Similar questions

Suppose there is a decrease in ?t.a) Analyse the short-run effects (on prices, wage, employment, interest rate, and output gap) of this shock. Use diagram to support your answer. b) Propose an appropriate fiscal or monetary policy response to this shock and describe the effects of that policy response on output, prices, interest rate, employment and wage rate. c) Compare the short-run effects (on prices and output) of the shock in two countries that only differ in their degree of price rigidity ? (? = ?̅ + ?(?? − ???)).• In economy A, menu costs are negligible and ? = 100• In economy B, menu costs are large and ? = 0.1
24. Which of the following groups benefit from an unanticipated rise in the inflation rate ? O. homeowners with foxed - rate mortgages O. elderly people living on fixed incomes O. creditors or lenders O. workers on contracts without escalator claines 25. Suppose oil prices continue to rise , causing a supply shock . If the Fed increases interest rates , what would be the long run outcome ? O. The economy returns to long run equilibrium at a lower output but higher price level O. The economy returns to long run equilibrium at the original price level and output O. The economy returns to full employment but at a higher price level O. The economy returns to the original price level but at a lower output
4. Consider the ASAD model of a closed economy with zero ongoing inflation and workers misperceptions. Firms are perfectly competitive, produce output with diminishing marginal returns to labour and have perfect foresight over the price level. Workers, instead, expect zero inflation in each period. At time zero, the economy is in the potential equilibrium. There is a negative shock on aggregate demand – for example, a permanent fall in desired autonomous consumption at time t = 1. What are the effects of the shock on the equilibrium real wage in the short and in the medium run? Describe (at least in words, and even better in a diagram) the entire time path of the real wage from before the shock to the medium-run equilibrium. Prove your statements formally – for example, use the diagram of the labour market where you measure the real wage on the vertical axis, and distinguish the very short run (the temporary equilibrium at time t = 1) from the medium run. Carefully explain the…
1.True or False: Businesses and government care only about long-run economic forecasts, because they cannot adapt policy or output to accommodate short-run fluctuations. 2.Suppose the most recent data show that the average initial weekly claims for unemployment insurance have recently increased. This change suggests a )RECCESSIONARY or EXPANSIONARY) period in the coming months? 3.Economists disagree about how quickly the economy adjusts to an aggregate demand shock. In the view of some economists, people form expectations based on present realities and change expectations gradually as their experience unfolds. Such expectations are said to be rational, unexpected, adaptive, reasonable, or great ? 4. Suppose an unanticipated increase in investment spending causes the aggregate demand curve to shift to the right (from AD1AD1 to AD2AD2). According to adherents of the adaptive-expectations theory, the unanticipated change in aggregate demand will cause the economy to move in which…
4) Suppose the economy is in a long-run equilibrium a)Draw the economy’s short-run and long-run Phillips curves b) Suppose a wave of business pessimism reduces aggregate demand .Show the effect of this shock on your diagram from part a .If the Fed undertakes expansionary monetary policy,can it return the economy to its original inflation rate and original unemployment rate? c)c) Now suppose the economy is back in long-run equilibrium and then the price of imported oil rises.Show the effect of this shock with a new diagram like that in part a .If the Fed undertakes contractionary monetary policy, can it return the economy to its original inflation rate and unemployment rate? Explain why this situation differs from that in part b.