ework (Ch 20) ppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of e following? Check all that apply. The level of technological knowledge The quantity of physical capital The inflation rate The price level uppose the economy produces real GDP of $60 billion when unemployment is at its natural rate. Use the purple points (diamond symbol) to plot the economy's long-run aggregate supply (LRAS) curve on the graph. (?) 132 128 LRAS

ework (Ch 20) ppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of e following? Check all that apply. The level of technological knowledge The quantity of physical capital The inflation rate The price level uppose the economy produces real GDP of $60 billion when unemployment is at its natural rate. Use the purple points (diamond symbol) to plot the economy's long-run aggregate supply (LRAS) curve on the graph. (?) 132 128 LRAS

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter16: Macro Policy Debate: Active Or Passive?

Section: Chapter Questions

Problem 1.2P

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The imaginary country of Harris Island has the aggregate supply and aggregate demand curves as Table 24.3 shows. Plot the AD/AS diagram. Identify the equilibrium. Would you expect unemployment in this economy to be relatively high or low? Would you expect concern about inflation in this economy to be relatively high or low? Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Identify the new aggregate equilibrium. How will the shift in AD affect the original output, price level, and employment?
On a microeconomic demand curve, a decrease in price causes an increase in quantity demanded because the product in question is now relatively less expensive than substitute products. Explain why aggregate demand does not increase for the same reason in response to a decrease in the aggregate price level. In other words, what causes total spending to increase if it is not because goods are now cheaper?
explain what happens in the short run if the Federal Reserve raises interest rates in the economy? Assume that the economy is at full employment before the interest rate increase. Be sure to detail what happens to: aggregate demandthe price levelthe level of GDPand unemployment. (Provide a detailed explanation of the graph provided).
3. Suppose an economy is in long run equilibrium. 3.1 use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). Be sure to include both short run and long run aggregate supply. 3.2 The central bank raises the money supply by 5 percent. Use your diagram to show that what happen to output and the price level as the economy moves from the initial to the new short run equilibrium (Call it point B). 3.3 Now show the new long-run equilibrium (call it point C). what cause the economy to move from point B to point C?
The table above shows Econland’s economy aggregate demand and aggregate supply schedules. Econland’s potential GDP is $400 billion. (1). Graph the aggregate demand curve (AD), the short-run aggregate supply curve (SRAS), and the long-run aggregate supply curve (LRAS). Make sure to have price level on vertical axis and real GDP on horizontal axis. (2). What are the short-run equilibrium price level and real GDP in Econland? (3). What is the long-run equilibrium real GDP?(hint: it is the same as the potential GDP) (4). Does Econland have an inflationary gap or a recessionary gap? (5). What is the size of the gap? (6). What specific fiscal policy would you prescribe to close the gap? (7). What specific monetary policy would you prescribe to close the gap?
See below. These are true or false questions. 1). In the long-run, aggregate supply is a horizontal line at the long-run price level people can afford. 2). One reason for why the aggregate demand curve slopes down is the wealth effect, which means that a higher price level leads to lower real wealth and, thereby, reduces the level of consumption.