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Illustrate and interpret
the short-run and
long-run equilibria and
the role of the selfcorrecting mechanism
Step by step
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- Explain the concept of excess demand in macroeconomics. Also, explain the role of open market operation in correcting it. (Kinly explain with diagram)The long run macroeconomic performance of an economy can be reflectedfrom the changes of her major macroeconomic indicators. With appropriateinterpretations of the changes to these indicators, one can identify the inherentstructural features of an economy, and hence, identify her strengths andweaknesses. In about 250 words, write a short essay on ONE economy from the list below:i. Singapore;ii. The United Kingdom;iii. The United States.In your essay, describe the changes of major macroeconomic indicators fromthe last decade. Using them to illustrate major structural features of the choseneconomy. Based on the above, identify ONE inherent problem implied bythese structural features that might limit her macroeconomic performance inthe long run. Suggest ONE practical government policy in dealing with thisinherent problem.How do the long-run model and the short-run model ft together? What isthe purpose of each model?
- The Black Death: In the middle of the fourteenth century, an epidemic known as the Black Death killed about a third of Europe’s population, about 34 mil-lion people. While this was an enormous tragedy, the macroeconomic con-sequences might surprise you: over the next century, wages are estimated to have been higher than before the Black Death.(a) Use the production model to explain why wages might have been higher.(b) Can you attach a number to your explanation? In the model, by how muchwould wages rise if a third of the population died from disease?Assume that an economy operates according to the sticky-wage model. The nominal wagewas set to make labor supply and labor demand equal when the expected price levelequaled 120 (as measured by the consumer price index).a. Use a graph of the labor market to illustrate what happens to the quantity oflabor employed if the actual price level over the time period when wages arestuck equals 110.b. Use a graph of the production function to illustrate how the quantity of outputproduced changes if the actual price level equals 110 when the expected pricelevel is 120.c. Given the unexpectedly low price level, will this economy be operating above,below, or at the natural rate?ADVANCED MACROECONOMICS: MODERN MACROECONOMICS MODEL It is known that the maximization of the household utility function is as follows: U₁ = fety InC₁ + (1 − y) ln(L – 1,)]dt Withconstraint : K₁ = (R₂ - S)K + Welt - Ct (2) The firm produces output through the production function (Yt = F(Kt. Lt. At)) Cobb Douglas constant return to scale with the aim of maximizing profit. It is assumed that the economy is a closed economy. A. Derive the labor supply equation. Explain how the relationship between increased household preferences for (i) consumption and (ii) leisure time on labor supply. B. Derive the labor demand equation. Explain how the relationship between (i) wages and (ii) capital to labor demand. C. Determine the amount of labor (level of labor) from the above economy in steady
- Suppose the economy of the hypothetical country “X” is currently in equilibrium at point A on thegraph. There were two major shocks to the economy in 2020.First shock was related to oil prices; the other was related to consumer confidence about futurebusiness conditions. Oil Shock: The economy X faced a rise in the average price of oil along with the rise of world price ofoil.E) Would an increase in oil prices cause a demand shock or a supply shock? Redraw the diagram toillustrate the effect of this shock by shifting the appropriate curve. What happens to theAggregate output and price level after the shock? (3)F) If policymakers wish to prevent the equilibrium output from changing in response to the oilprice increase, should they use contractionary or expansionary fiscal policy? (Redraw the graphfrom part E and show the change) (4)G) Even if the economy moves back to original Aggregate output, will there be any drawback? (1)Consumer Confidence Index: The Consumer Confidence Index…Illustrate and interpretthe short-run and longrun effects of temporary and permanentsupply shocks4Consider a baseline long run equilibrium where output is 22 trillion dollars, and the price level is 100. Note: In the Long Run Steady State Equilibrium, Price expectation is the same as price level & unemployment is 5% or lower. None of these are guaranteed in the short run. Usually, short run equilibrium is called an underemployment equilibrium.Starting from the baseline, suppose COVID 19 hits this economy. If this disease only makes workers sick (everything else remaining constant) A Keynesian Macroeconomist proposes the use of a massive expansionary fiscal policy. Step 1) What will be the shape of the Phillips Curve (Upward / Downward/ Vertical/Horizontal). I want you to think about what variable is measured on the horizontal axis of the Phillips Curve Graph and what variable is measured in the Phillips Curve Vertical axis. Then tell us what it means to say that Phillips Curve is upward or downward sloping or vertical or horizontal Step 2) why did this policy create a…
- Using the model of business fluctuations, show the effect of the COVID-19. Recall that COVID-19 shut down production in a series of important U.S. industries and caused considerable job losses. Fear of the virus caused Americans to travel less, buy fewer personal services, and consume fewer restaurant meals. (b) The Fed responded to the economic effects of COVID-19 by cutting interest rates while Congress passed a large relief package (i.e., an increase in government spending). Show each of these effects on a separate diagram.(a) Explain the characteristics of the production function used in the Heckscher-Ohlin (H-O)model. (b) Explain with the help of a graph how we can determine the specific combination oftwo goods that can be produced in the economy in the H-O model.1. Evaluate the following claim in the context of the static general equi- librium model with production: “An increase in the wage causes labour demand to fall, and therefore makes households worse off.” explains in detail and not copy paste from the anywhere
