If consumer confidence falls, then aggregate demand shifts a. left, raising the inflation rate above its previous level. b. right, raising the inflation rate above its previous level. c. left, lowering the inflation rate below its previous level. d. right, lowering the inflation rate below its previous level.

If consumer confidence falls, then aggregate demand shifts a. left, raising the inflation rate above its previous level. b. right, raising the inflation rate above its previous level. c. left, lowering the inflation rate below its previous level. d. right, lowering the inflation rate below its previous level.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 3DQ

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In a Keynesian framework, using an AD/AS diagram, which of the following government policy choices offer a possible solution to recession? Which offer a possible solution to Inflation? A tax Increase on consumer income. A surge in military spending. A reduction in (axes for businesses that Increase investment. A major Increase in what the U.S. government spends on healthcare.
Suppose that a rise in consumer spending causes an expansion. 1. On the following graph, shift a curve or adjust the point to reflect the short-run effect of the rise in consumer spending. (Please use the image attached) 2. In the short run, inflation rises? falls? and unemployment rises? falls?. Now suppose that over time, expected inflation changes in the same direction that actual inflation changes. 3. After the expansion is over, the economy faces a worse? better? set of inflation–unemployment combinations.
Q7. What is the Keynesian prescription for inflation? ( Pick 1 letter) A. Keynesians prescribe decreasing aggregate demand through increased government spending B. Keynesians prescribe decreasing aggregate demand through fiscal restraint C. Keynesians prescribe increasing aggregate demand through fiscal restraint 10.
An economy's aggregate demand curve (the relationship between short-run equilibrium output and inflation) is described by the equation:Y = 15,000 - 12,000π, where π is the inflation rate. Initially, the inflation rate is 2 percent or π = 0.02. Potential output Yp equals 14,640.Note: Keep as much precision as possible during your calculations. Your final answer for inflation should be accurate to at least two decimal places and output should be accurate to the nearest whole number.a) Find inflation and output in short-run equilibrium. Inflation : 0%Output : $0 b) Find inflation and output in long-run equilibrium. Inflation : 0%Output : $0
Question 2:a. Give one example of a demand shock (a change that shifts demand curve) and oneexample of supply shock (a change that shifts supply curve) that may lead to an inflationarygap (positive output gap).b. How would the economy eliminate the inflationary gap and return to its long runequilibrium without any interventions from the policymakers (self-correcting mechanism)?
The economy begins in long-run equilibrium. Then one day, the president appoints a new Fed chair. This new chair is well known for her view that inflation is not a major problem for an economy. a. How would this news affect the price level that people expect to prevail? b. How would this change in the expected price level affect the nominal wage that workers and firms agree to in their new labor contracts? c. How would this change in the nominal wage affect the profitability of producing goods and services at any given price level?
Which of the following reduces the effectiveness of inflation targeting as a means of reducing cyclical fluctuations in the economy? A) People increasingly believe that the rate of inflation affects the level of real output. B) Oil prices become more stable. C) Goodhart's Law, as applied to inflation targets, breaks down. D) The trade-off between inflation and unemployment (and output) virtually disappears.
Suppose you are Herb Stein, Chair of Economic Advisors to President Ford. OPEC has just quadrupled the price of oil. The entire economy uses oil in manufacturing (exaggeration, but not a big one), consequently the costs reflected by the AS curve dramatically increase. Using the AD/AS model, what happens to output and prices? Same role, a recession with inflation now exists(stagflation), both are serious, 10% u/e, 14% inflation. You are thinking of proposing a solution to the recession, the negative GDP gap is $300 billion, the MPC is .75. Businesses won't increase Investment because of fear of losses You remember from your econ 101 class, that there is a multiplier effect for Government Expenditures. If you just want to fix this negative gap, how much Government expenditure would you propose? Same role, Using the AD/AS model, what would you expect to be the result of your proposal in the above question, with regard to output, and inflation? Does the degree of the shape of the AD/AS…
(c). 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.
4. Let ́s suppose the economy needs to be more dynamic. Propose a policy that will achieve low levels of inflation without provoking too much unemployment: 4.a. How effective is going to be this policy under the general model of AD-AS with rigidities in the labor market. Explain and use graphs. 4.b. If the AS is based on expectations over inflation, when this policy can be fully effective? Explain and use graphs.
In the Keynesian framework, which of the following events might cause a recession? Which might cause inflation? Sketch AD/AS diagrams to illustrate your answers. A large Increase In the price of the homes people own. Rapid growth in the economy of a major trading partner. The development of a major new technology offers profitable opportunities for business. The Interest rate rises. The good imported from a major trading partner become much less expensive.
Multiple Choice Question In general, an increase in the money supply causes: deflation. an increase in aggregate demand. O no verifiable change in economic variables. O inflation.

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	a.	left, raising the inflation rate above its previous level.
	b.	right, raising the inflation rate above its previous level.
	c.	left, lowering the inflation rate below its previous level.
	d.	right, lowering the inflation rate below its previous level.