6. Aggregate demand, aggregate supply, and the Phillips curve In the year 2023, aggregate demand and aggregate supply in the fictional country of Bartak are represented by the curves AD2023 and AS on the following graph. The price level is 102. The graph also shows two possible outcomes for 2024. The first potential aggregate demand curve is given by the ADA curve, resulting in the outcome illustrated by point A. The second potential aggregate demand curve is given by the ADB curve, resulting in the outcome illustrated by point B. 108 107 AS 106 B 105 A 104 AD 2023 103 AD. 102 AD 101 100 2 4 6 8 10 12 14 16 OUTPUT (Trillions of dollars) Suppose the unemployment rate is 7% under one of these two outcomes and 5% under the other. Based on the previous graph, you would expect to be associated with the higher unemployment rate (7%). If aggregate demand is low in 2024, and the economy is at outcome A, the inflation rate between 2023 and 2024 is PRICE LEVEL

6. Aggregate demand, aggregate supply, and the Phillips curve In the year 2023, aggregate demand and aggregate supply in the fictional country of Bartak are represented by the curves AD2023 and AS on the following graph. The price level is 102. The graph also shows two possible outcomes for 2024. The first potential aggregate demand curve is given by the ADA curve, resulting in the outcome illustrated by point A. The second potential aggregate demand curve is given by the ADB curve, resulting in the outcome illustrated by point B. 108 107 AS 106 B 105 A 104 AD 2023 103 AD. 102 AD 101 100 2 4 6 8 10 12 14 16 OUTPUT (Trillions of dollars) Suppose the unemployment rate is 7% under one of these two outcomes and 5% under the other. Based on the previous graph, you would expect to be associated with the higher unemployment rate (7%). If aggregate demand is low in 2024, and the economy is at outcome A, the inflation rate between 2023 and 2024 is PRICE LEVEL

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 8PA

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4: Suppose that a fall in consumer spending causes a recession.a) Illustrate the immediate change in the economy using both an aggregate-supply/aggregate demanddiagram and a Phillips-curve diagram. On both graphs, label the initial long-run equilibrium as point Aand the resulting short-run equilibrium as point B. What happens to inflation and unemployment in theshort run?
2. The Phillips curve in the short run and long run In the year 2023, aggregate demand and aggregate supply in the fictional country of Gurder are represented by the curves AD2023 and AS on the following graph. Suppose the natural rate of output in this economy is $6 trillion. NOTE: OPTIONS FOR BLANKS ARE: 1. The short-run Phillips curve is ______ (a vertical OR a downward sloping OR an upward sloping) 2. Because output at point C is _____ (less than OR greater than OR equal to) the natural rate of output, the unemployment rate associated with outcome C is _____ (less than OR greater than OR equal to) 3. This line is _____ (a vertical OR a downward sloping OR an upward sloping)
3. a) Using AD-AS model, explain how a negative demand shock due to COVID 19 will affect the economy in the short run and long run (Show short run and long run adjustment in a single diagram). b) Derive the equation of Expectation Augmented Phillips curve using standard equation of Aggregate Supply (AS) and explain causes of inflation in terms of it. How does expectation augmented Phillips curve explain Stagflation?
Attached: Figure 2: Keynes’s AD-AS Model Question 1 Changes in which factors could cause aggregate demand to shift from AD to AD1? What could happen to the unemployment rate? What could happen to the inflation rate? Question 2 The Keynesian AD-AS model describes what happens with price levels when aggregate demand increases. Could you find any evidence from the last ten-fifteen years that might support AD-AS model descriptions of demand-pull inflation, cost-push inflation, and recession? For example, you could find data on the GDP’s of any two countries from 2000 to 2017 to support your findings. In macroeconomics, the immediate short run is known as a length of time when both input prices and output prices are fixed. In the short-run, input prices are fixed but output prices are variable. In the long run, input prices and output prices can vary. What happens in the immediate short-run when AD rises from AD to AD2 to the price level and output? What happens in the short-run when…
2) Suppose that government decides to support the firms for their investments in research and the development. Assuming this support increases productivity in the economy, use aggregate demand and supply analysis to predict the short-run and long-run effects on inflation and output. Show these effects on a graph and explain the results in detail. 3) Why the slope of the aggregate supply curve differs in the short-run and in the long-run? Why the long- run aggregate supply curve is vertical and why the short-run supply curve is upward sloping? Explain in detail.
Specific subject - Macroeconomic Analyse the case of a negative supply shock caused by an increase in oil prices and compare with the shock caused by the Covid pandemic. What would be the similarities and differences between the two shocks? What would be the effect of an expansionary economic policy (increase in aggregate demand)? Graph What measures or government intervention would be most appropriate to deal with both types of shocks? Graph Compare the adjustment in both cases with and without government intervention. Graph
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
MA4. 13. If the equation for a country's Phillips curve is π = 0.05 – 0.8(u – 0.05), where π is the rate of inflation and u is the unemployment rate, what is the short-run inflation rate when unemployment is 3 percent (0.03)? A) .066 B) -.056 C) -.066 D) .056 11. The aggregate supply equation is Y = Y + α(P – EP). Assume that Y is 2,000, α = 200, P = 1.12 and EP = 1.00. What is the value of Y? A) 2,232 B) 2,024 C) 2,400 D) 2,012 9. If policymakers announce in advance how policy will respond to various situations but then renege on their announcements, this a problem of: A) policy by rule. B) policy by discretion. C) time inconsistency of policy. D) monetary policy. 10. According to the sticky-price model, output will be above the natural level if: A) firms expect a high price level and the demand for goods is high. B) the proportion of firms with flexible prices equals the proportion of firms with sticky prices. C) the price level is above the…
1) According to the Phillips Curve, as unemployment falls what happens to inflation? Why? 2) According to the Phillips Curve, as unemployment rises what happents to inflaiton? Why? 3) According to the Aggregate Supply/ Aggrgeate Demand model, if AD increases what happebs to Price Level GDP and Unemployment 4) Accroding to the AS/AD model, if AD decreases what happens to PL, GDP and unemployment? 5) According to the AS/AD model if AS decreases what happens to PL GDP and unemployment? 6) Based on your answer to #5 how would you show the decrease in AS on the Philips Curve?