Ghana’s economy is operating at long-run equilibrium. Analyse the short-run impact of an adverse (negative) aggregate demand shock on real GDP, unemployment rate, inflation rate, and interest rate. Illustrate your answer with the AS-AD diagram

Ghana’s economy is operating at long-run equilibrium. Analyse the short-run impact of an adverse (negative) aggregate demand shock on real GDP, unemployment rate, inflation rate, and interest rate. Illustrate your answer with the AS-AD diagram

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter22: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 17P

See similar textbooks

Related questions

Q: The following table lists several determinants of short-run aggregate supply. Fillin the table by…

Q: Which of the following is false in the dynamic AS-AD model? An increase in the natural level of…

A: The AD-AS model is a means of explaining how national income is determined and how price levels…

Q: se the IS-LM model to describe the short-run effects of a decrease in government expenditure on the…

A: IS-LM model is a classic theory made by Keynes which helped to formulate a more realistic theory in…

Q: Write down the expressions for the AS and AD curves and interpret the expressions: what is the…

A: (Note: Since there are many questions, only the first one has been solved). The macroeconomic…

Q: Draw the AS-AD model for the following scenario: The economy is hit by a negative AD shock. Assume…

A: The AS-AD model or model of aggregate demand and aggregate supply represents the AD and AS curves to…

Q: true/false, explain In the dynamic AS-AD model, a perfectly inelastic aggregate supply curve means…

A: Monetary policy refers to the set of policy measures adopted by the monetary authority of an…

Q: Use the graph to answer the question that follows. Price LRAS SRAS Level H AD₂ AD₁ 0 Output Assume…

A: Ans. In the given, there is a long- adjustments in the equilibrium level (i.e. output at the full…

Q: Consider a standard AD-AS model. If the central bank responds relatively aggressively to inflation…

Q: Below is a graphical model of the AS-AD. In this model, the initial level of the economy is at low…

A: Macroeconomics analyzes the economy as a whole. It studies aggregate economic concepts such as…

Q: Fill in the table by indicating the changes in the determinants necessary to decrease short-run…

A: The short run aggregate supply curve (SRAS) represents the relationship between the price level and…

Q: True/False with explanation In the dynamic AS-AD model, a perfectly inelastic aggregate supply…

A: Central Bank is the apex bank in any country. It is responsible for all monetary policy…

Q: A supply shock might lead to stagflation, if it shifts the short-run aggregate supply curve to the…

A: Aggregate supply refers to the total amount of all the goods and services supplied in an economy…

Q: The usual analytical method in macroeconomics is to begin in long-run equilibrium, shock the…

A: The short-run is the period where at least one factor of production is fixed and cannot changed,…

Q: Assume an economy is initially operating at the natural rate of output. a. Draw an AD-AS model.…

A: At different price levels, the aggregate demand curve depicts the total quantity of all commodities…

Q: Price Levels, P AS Curve D A P* В C PB AD Curve E AD' YB Yn Output, Y Figure 3.

A: The medium-run equilibrium refers to that at which the natural level of output gets produced and the…

Q: The standard AD-AS model suggests that frequent unpredictable swings in AD will lead to a business…

A: The aggregate demand (AD) shows the relationship between the total demand (real GDP) and the price…

Q: Which of the following is false in the dynamic AS-AD model? An increase in the natural level of…

A: AS-AD model: It refers to a model under which the economy can measure the national income with the…

Q: Aggregate Supply shocks and the medium run Consider an economy with output equal to the natural…

A: Unemployment benefits are provided to the unemployed labor force during the period when they are…

Q: Following the equation: Y= C + I + G + NX will the below examples increase or decrease the aggregate…

A: A) Widespread fear of recession: This would lead to an environment of uncertainty in the economy and…

Q: The COVID-19 restrictions required firms (businesses) to increase spending on cleaning and QR code…

A: Economists use the term "aggregate" to denote "total." The graph measures quantity with the Gross…

Q: What is the fundamental tradeoff faced by The Fed when responding to a negative real shock? (Three…

A: A negative real shock is the events of an unexpected shock that tends to affect the fundamental…

Q: Which of the following would cause the dynamic DAD curve to shift in (back)? A) a decrease in…

A: The correct option is A.

Q: Refer to the graph to the right. The shift from AS, to AS, shown in the diagram is referred to as…

A: Aggregate supply curve is a positively sloped curve which shows the relationship between price level…

Q: The economy of Winterspring is currently in an equilibrium depicted by point E, on the graph.…

A: The macroeconomic equilibrium in an economy is determined by the aggregate demand and aggregate…

Q: Use the IS-LM model to describe the short-run effects of a decrease in government expenditure on the…

A: The IS curve shows all the combinations of output and interest rate at which the goods market of the…

Q: Give an example of a favourable and unfavourable shock to the aggregate supply. Use the model of…

A: Favourable shocks are those shocks which raise production without raising the cost for example…

Q: As the economy slide into the Great Depression, many banks failed and the nation’s money supply…

A: If money supply falls due to bank failures, then we can think about the money market…

Q: True/False In the dynamic AS-AD model, a perfectly inelastic aggregate supply curve means the…

A: Central Bank is the apex bank in any country. It is responsible for all monetary policy…

Q: Using graphical illustration of AS-AD framework, show the effects of following events on real output…

A: In the AS-AD model, equilibrium is at such a price level where the aggregate quantity demanded…

Q: Which of the following is false in the dynamic AS-AD model? An increase in the natural level of…

A: Aggregate demand and aggregate supply refer to the schedule that provides information about the…

Q: Coronavirus pandemic and resultant shutdown measures to contain it have plunged the economies around…

A: Aggregate demand and aggregate supply is an important part of macroeconomic discussion. Aggregate…

Q: “Policymakers would never respond by stabilizing output in response to a temporary positive supply…

A: The temporary supply shock leads to a shift in the aggregate supply curve down. This shift moves the…

Q: Oil price shocks have an evident impact on the short run aggregate supply curve. With the help of a…

A: Short-run aggregate supply (SRAS) depicts the total supply of goods and services in the economy in…

Q: Which of the following will cause a shift in the short-run aggregate supply curve? a.An increase in…

A: Aggregate demand is the composition of consumption, investment, government spending and net exports.…

Q: When aggregate output is below the natural rate of output, what happens to the inflation rate over…

A: Rate of Output (YN): Where all the factors of production efficiently use, while there is certain…

Q: In the AD/AS model, why does any given AD shock result in a different price and output effects on…

A: Shock:- Shock refers to the unexpected change in aggregate demand and short run supply curve.…

Question

Ghana’s economy is operating at long-run equilibrium. Analyse the short-run impact
of an adverse (negative) aggregate demand shock on real GDP, unemployment rate,
inflation rate, and interest rate. Illustrate your answer with the AS-AD diagram.

Video Video

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Explain and demonstrate graphically the effects of a negative supply shock in both the short-run and long-run. (Hint: Use AD-AS framework)
Describe an economic environment which would be characterized by the term "stagflation". Using an AD - AS diagram, depict and given an example of a macroeconomic shock that would take an economy from a long - run equilibrium to a situation of stagflation. Label all points on the graph completely and point out the key characteristics associated with stagflation on your graph.
Oil price shocks have an evident impact on the short run aggregate supply curve. With the help of a graph demonstrate how rising oil prices affect the SRAS and explain what other factors can cause this shift.
Use the IS-LM model to describe the short-run effects of a decrease in government expenditure on the equilbrium output and real interest rate. Assuming the economy is in a long-run equilibrium before the shock, also explain how the price level changes over time, and what happens to the economy in the long run. Use the AS-AD framework for this part of the question. Add diagrams to illustrate the answer - you can use the attachment feature of the answer editor to upload your chart.
true/false, explain In the dynamic AS-AD model, a perfectly inelastic aggregate supply curve means the central bank cannot control the rate of output growth or the inflation rate.
Coronavirus pandemic and resultant shutdown measures to contain it have plunged the economies around the world including Singapore into severe contraction. Assuming Singaporean economy was in long run equilibrium in the aggregate demand and supply (AD-AS) model before the pandemic (and consequent shutdown) started, answer the questions below: Now assume that the contraction in the Singaporean economy is mainly driven by supply side factors, Show the short-run effects of this using the AD-AS model.
Assume the economy operates in the intermediate range of aggregate supply curve. Using the AS/AD model, discus the impact of the following events on the price level and real GDP, and provide relevant figures. a) The recent oil production cut by OPEC and its allies, including Russia, disrupted the global oil market. b) An expansionary monetary policy on which the interest rate is lowered.
Draw the AS-AD model for the following scenario: The economy is hit by a negative AD shock. Assume there is no monetary or fiscal policy implemented, and the AD shock is permanent. Make sure to include the initial equilibrium, the short-run equilibrium, and the new long-run equilibrium. Label the axes and the curves.
Consider the AS-AD and three-equations models of a closed economy. Write down the expressions for the AS and AD curves and interpret the expressions: what is the intuition behind the two curves? What must be true of the model parameters and variables in the long-run equilibrium, i.e. in the steady state? Analyse the effects of an oil supply shock that causes a temporary increase in inflation, using the three-equation model. Assume that the shock lasts for one-period and then assumes the value 2%. Describe the mechanisms that bring the economy back to long-run equilibrium. What happens to aggregate demand? Consider an economy that starts out in steady state when the central bank decides to make the inflation target more ambitious. Analyse the effects of a decrease in the inflation target from ? to . Explain the mechanisms behind the adjustment to the new steady state.
Coronavirus pandemic and resultant shutdown measures to contain it have plunged the economies around the world including Singapore into severe contraction. Assuming Singaporean economy was in long run equilibrium in the aggregate demand and supply (AD-AS) model before the pandemic (and consequent shutdown) started, answer the questions below: Assuming the contraction in the Singaporean economy is mainly driven by demand side factors, Show the short-run effects of this using the AD-AS model. Carefully explain in words (100 or less)
In the AD/AS model, why does any given AD shock result in a different price and output effects on short-run macroeconomic equilibrium?
Which event would shift short-run aggregate supply to the right? (a) A labor shortage puts upward pressure on wages, causing an increase in the expected rate of inflation. (b) An increase in government regulation makes it more costly for firms to comply with legislative requirements. (c) Expecting inflation to increase, workers bargain for higher wages. ( d) Internet technology allows retailers to use just-in-time delivery of merchandise, thereby lowering inventory costs. Only typed answer and don't use chat gpt