If Mexico lowers its inflation target from 3 percent to 2 percent, the initial response to this will be A) that the AS will shift left. B) that the AD will shift left. C) a rightward movement along the IS curve. D) the LM curve will shift down. E) that the AD will shift right.
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- Consider an AD-AS model with AD curve Y – Y* = - αγ (π - π*) + εand AS curve π = π + φβ(Y – Y*) + εwith parameter values α = 0.5, γ = 1, φ = 1, β = 0.5,and with inflation target π* = 0.02 and potential output normalised to Y* = 1.Starting from a long-run equilibrium with π = π* suppose there is a temporary demand shock ε = -0.05. Which of the following is TRUE? 1.In the short run, output is 5% below trend 2.In the short run, output is 4% below trend 3.In the short run, inflation is 1% 4.In the long run, output is 5% below trendIn the AD/AS model, a short-run inflationary boom can occur which returns to full employment in the long run because Select one: a. the inflation reduces profitability and output in the short run, but costs eventually fall and output is restored in the long run. b. the boom pushes up prices and salaries in the short run, reducing output, but companies attempt to restore profitability in the long run by pushing prices and salaries back down, which brings output back to full employment. c. aggregate supply is reduced in the short run, along with profit and output, but aggregate demand increases in the long run, along with profit and output, to bring the economy back to full employment. d. it takes a while for costs to catch up to inflation, so inflation boosts revenue, profit, and output in the short run, but the later-rising costs return profit and output to normal in the long run.Consider the classical AS-AD model with misperceptions. Assume that the economy is initially at its general equilibrium. Now, suppose the central bank considers an increase in the nominal money supply that is not anticipated by households or firms. a. How does the misperception theory work? b. Which of the three markets is first affected (labor, goods, or asset market)? Explain and show graphically how this market is affected by an unanticipated increase in the nominal money supply. c. Use the classical version of the AS-AD model with misperceptions to explain and to show graphically how an unanticipated increase in the nominal money supply affects the short-run equilibrium. d. Use the classical version of the AS-AD model with misperceptions to explain and to show graphically how an unanticipated increase in the nominal money supply affects the long-run (general) equilibrium.
- given the graph and The current target inflation rate in 8 percent. The natural rate of unemployment is 5 percent and Okun's alpha is 8. Suppose that investment spending by business firms increases causing the AD function to shift to the right by 3,000 units. what will the inflation rate be? what will short run real gdp be? what will cyclical unemployment be? what will overall unemployment be? what will the long term inflation rate be?During July 2020, Japan’s u was 2.6%; economists have estimated that Japan’s un is 2.5%. If Japan has an accelerationist PC, what would have happened to Japan’s inflation rate during July? Explain fully by showing where Japan was functioning using the appropriate graph. Make all your assumptions clear; calculations not required.Let's say you are the chair of economic advisors to the president. Assume that the economy, as depicted in an AD/AS framework is at: potential (full employment) output, The intersection of the SRAD, SRAS, and LRAS, all intersect at the level of potential (full employment) output and a corresponding price level ( or an acceptable rate of inflation). The economy's mpc is .75, which is presumed to remain constant. Now, global problems emerge, and the US decided to produce many new fighter jets immediately to the region under duress. The new jets will cost $55 b., and other expenditures by the government cannot be cut. The president is concerned that the new expenditures will create an inflation, but needs to produce the new jets immediately. What policies would you propose, that would enable the country to produce the new jets, without creating an inflation? Use the AD/AS framework to illustrate your answer. Assume any taxes are lump sum taxes. Specify the spending and taxing…
- Aggregate demand function is given by Y=7000-20P; the shirt-run aggregate supply function is given by Y=6000+5(P-Pe). The economy was in equilibrium when the government unexpectedly increased its spending which led to a shift of the aggregate demand curve to Y=7500-20P. What's the rate of inflation? Please illustrate the calculations by means of an AS-AD graph.Assume, while an economy is in long-run equilibrium, an adverse supply shock occured, suchas energy prices have incrased. The central bank decides to accommodate this shock and restores theequilibrium quickly. What would be the effect of this policy action on inflation? Explain and illustratewith the help of an AD-AS diagram.During July 2020, Japan’s u was 2.6%; economists have estimated that Japan’s un is 2.5%. If Japan has an accelerationist PC, what would have happened to Japan’s inflation rate during July? Illustrate fully by showing where Japan was functioning using the appropriate graph. Make all your assumptions clear.
- a) Which of the following would a classical macroeconomist disagree with? The interest rate is the price of time or productivity of capital Nominals effect nominals Recessions are caused by an over production of all economic goods Prices should be as flexible as possible Effective demand comes from prior supply b) Which of the following is true? The expected costs and returns for holding money are important for estimating the demand of real cash balances The difference between nominal GNP and real GNP is that nominal GNP has been adjusted by a price deflator to account for changes in the value of money (inflation) People in Group 1 receive the inflation tax on their cash-balances Interest is the price of money The real money supply is equal to the nominal money supply divided by the real money supplyWith respect to the concept of inflation, it is correct to say that ________. options: A) inflation increases the purchasing power of consumer dollars. B) inflation and deflation are really almost synonymous in practice. C) the consumer price index is one way to measure inflation. D) inflation occurs when the amount of money taken out of the economy exceeds the amount of money put into the economy. E) inflation occurs when people have more money to spend as the quantity of goods available increases.Consider an economy that targets an inflation rate of 2 percent. After reviewing economic changes, the government changes the target rate to 3 percent. As a result, the MPRC will Group of answer choices get steeper shift leftward get flatter shift rightward
