Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to "Calculate," you must show how you arrived at your final answer. Assume that a country's economy is in a short-run equilibrium and the actual unemployment rate is lower than the natural rate of unemployment. (a) Using a correctly labeled graph of the long-run aggregate supply curve, short-run aggregate supply curve, and aggregate demand curve, show each of the following. (i) Current price level, labeled PL₁, and current output level, labeled Y₁ (ii) The full-employment output level, labeled YF (b) Assume the country's banking system has ample reserves. What monetary policy action should the country's central bank use to move the economy toward its long-run equilibrium? (c) Draw a correctly labeled graph of the country's reserve market, and show how the central bank's action to move the economy toward its long-run equilibrium affects the policy rate in the short run.

Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to "Calculate," you must show how you arrived at your final answer. Assume that a country's economy is in a short-run equilibrium and the actual unemployment rate is lower than the natural rate of unemployment. (a) Using a correctly labeled graph of the long-run aggregate supply curve, short-run aggregate supply curve, and aggregate demand curve, show each of the following. (i) Current price level, labeled PL₁, and current output level, labeled Y₁ (ii) The full-employment output level, labeled YF (b) Assume the country's banking system has ample reserves. What monetary policy action should the country's central bank use to move the economy toward its long-run equilibrium? (c) Draw a correctly labeled graph of the country's reserve market, and show how the central bank's action to move the economy toward its long-run equilibrium affects the policy rate in the short run.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 61P: Table 24.4 describes Santhers economy. Plot the AD/AS curves and identify the equilibrium. Would you...

See similar textbooks

Similar questions

Draw the ASAD graph in long run equilibrium (see an example in your textbook Figure 13.11) Label all the following: Solow Curve M+v C + I +G + NX Inflation rate Real growth A, K eL
Question 01 Due to COVID-19 situations the oil prices fall in international market. Let’s assume that output starts at its natural level. What happens to the country A's economy (output and price) in the short run? Explain your answer using AS-AD graphs.
Suppose that a country experiences a reduction in productivity--that is, an adverse shock to the production function. (This example should sound familiar!)a. What happens to the labor demand curve?b. How would this change in productivity affect the labor market--that is, employment, unemployment, and real wages--if the labor market was always in equilibrium?c. How would this change in productivity affect the labor market if unions prevented real wages from falling?
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?
Specific Subject: Macroeconomics - Basic Neoclassical Model This problem indicated At (exogenous variable represents as Technology as looks at Cobb-Douglas production functions). This problem indicated At (exogenous variable represents Technology as can be seen in various Cobb-Douglas type production functions).Then, the objective is to model 2 graphs considering 2 labour offers - one relatively elastic and the other inelastic -, and to analyse the effects of variables such as Yt (output), rt (interest rate), wt (nominal wage) and Nt (labour) and how they are impacted by these offers and thus explain what happens to the real wage. This problem was sent 2 times, but due to the complexity it was rejected. I urgently need a resolution.
Q1: Consider a baseline short run equilibrium where output is 16 trillion dollars, and the price level is 20. 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) can you show how would the short run steady state equilibrium will be disrupted? As a Keynesian Macroeconomist, what policies will you propose?• You should answer each step in the following the answer 1 table. Q2: Continuing from Question 1: What will be the shape of the Phillips Curve because of the policy that you selected in Step 2 (of Question 1)? Why? Please explain in detail.•You should answer each step in the following the answer 2 table.
/Consider 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) this is a Continuing from Question 3, and Question 3 had been answered in Answer 3 table. You should answer in table Anwser4 with following steps
Consider an economy (call it country G) that is implementing climate change legislation more rapidly than other countries (refer to them as ‘row’ for ‘rest of the world’). Explain how this decision by country G could affect its long-run markup. Using diagrams, explain your forecast for the effect of this decision on real wages, inequality and employment in G in the new equilibrium. In the light of your findings, what advice would you give to a policy maker in G?
Suppose the economy is producing at its potential output. Now suppose that consumers and businesses become more pessimistic about the economic outlook. As a result, in the short run the_____________________. Select one: a. output will remain at potential b. output will rise above potential c. output will fall below potential d. output will at first rise above potential, and then return to potential
Assume that the economy starts at the natural level of output. Now suppose there is a permanent increase in the relative price of oil. a. Using the wage-setting and price-setting diagram (and explaining the intuition of the curves), show what happens to the unemployment rate in the medium run. Why does this happen? b. Assuming a simple production function, Y=N, where Y is output and N is employment, explain what happens to mediumrun equilibrium output. C. Assume the central bank has an inflation target. In an AS-AD diagram (explaining what lies behind the curves), show what happens to output and inflation in the short run and the medium run.
Table 24.4 describes Santhers economy. Plot the AD/AS curves and identify the equilibrium. Would you expect unemployment in this economy to be relatively high or low? Would you expect prices to be a relatively large or small concern for this economy? Imagine that input prices fall and so AS shifts to the right by 150 units. Identify the new equilibrium. How will the shift in AS affect the original output, price level, and employment?
4Consider 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…