Q3. When the economy is at full capacity: A. The economy is at less than full potential employment, and inflation may rise B. The economy is at full potential GDP, and inflation may fall C. The economy is at less than full potential employment, and inflation could rise or fall. D. The economy is at full potential GDP, and infiation may rise 9. If output is greater that full potential (full employment) output: A) A recessionary gap may result B) An unemployment gap will result C) A deflationary gap may result D) An inflationary gap may result

Q3. When the economy is at full capacity: A. The economy is at less than full potential employment, and inflation may rise B. The economy is at full potential GDP, and inflation may fall C. The economy is at less than full potential employment, and inflation could rise or fall. D. The economy is at full potential GDP, and infiation may rise 9. If output is greater that full potential (full employment) output: A) A recessionary gap may result B) An unemployment gap will result C) A deflationary gap may result D) An inflationary gap may result

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter20: Aggregate Demand And Supply

Section: Chapter Questions

Problem 20SQ

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Pick 1 answer for each. 3. When the economy is at full capacity: A) The economy is at less than full potential employment, and inflation may rise B) The economy is at full potential GDP, and inflation may fall C) The economy is at less than full potential employment, and inflation could rise or fall. D) The economy is at full potential GDP, and inflation may rise 9. If output is greater that full potential (full employment) output: A) A recessionary gap may result B) An unemployment gap will result C) A deflationary gap may result D) An inflationary gap may result.
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.
Refer to the table below. (SEE PICTURE) Suppose that aggregate demand increases such that the amount of real output demanded rises by $19 billion at each price level.Instructions: Enter your answers as whole numbers. a. By what percentage will the price level increase? Will this inflation be demand-pull inflation or will it be cost-push inflation? b. If potential real GDP (that is, full-employment GDP) is $510 billion, what will be the size of the positive GDP gap after the change in aggregate demand? c. If government wants to use fiscal policy to counter the resulting inflation without changing tax rates, would it increase government spending or decrease it?
1. Another economy has the production Y = A * K^0.5 * L^0.5, the marginal product MPL = 0.5 * A * K^0.5 / L^0.5, in which K = 144 and the supply of labor w = 5 * EP/P *L^0.5 Productivity is A=50. In absence of shocks and policies, EP/P=1, the number of jobs is L = 60, and wage is w = 38.73. But now inflation is slower than expected, with EP/P=1.2. Find the new equilibrium number of workers. 2. Find the new equilibrium wage at EP/P=1.2 3. Graph the change in the labor market equilibrium. Mark the before and after equilibria with E0 and E1. Label axes and curves, map relevant values onto axes. 4. Now let's consider this same scenario in terms of the accelerationist Phillips curve. The labor force is N=64. Find the rates of unemployment before and after as (N-L)/N and map them into our surprise inflation indexes, EP/P. Label the natural rate of unemployment, show the cyclical rate of unemployment.
1. Another economy has the production Y = A * K^0.5 * L^0.5, the marginal product MPL = 0.5 * A * K^0.5 / L^0.5, in which K = 144 and the supply of labor w = 5 * EP/P *L^0.5 Productivity is A=50. In absence of shocks and policies, EP/P=1, the number of jobs is L = 60, and wage is w = 38.73. But now inflation is slower than expected, with EP/P=1.2. Find the new equilibrium number of workers. 2. Find the new equilibrium wage at EP/P=1.2 3. Graph the change in the labor market equilibrium. Mark the before and after equilibria with E0 and E1. Label axes and curves, map relevant values onto axes.
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?
Suppose the interest rate that banks in Techland charge one another for overnight loans is 5 percent, the long-term nominal interest rate is 4.5 percent, and the long-term expected inflation rate is 3 percent. What is the long-term expected real interest rate? How will the long-term expected real interest rate be affected if the central bank of Techland starts purchasing government bonds from banks?
1. Use the AD-AS model attached to explain and illustrate the difference between demand side measures and supply side measures and give an example of each. Also mention which markets are embedded within each curve. 2. Use the AD-AS model to Analyze and illustrate the short run impact of an increase in energy prices on GDP, inflation and employment. Which type of inflation is this?
Suppose the economy is at its long- run equilibrium when there is a sudden increase in wealth. Using IS-MP, AD-IA answer compare the following variables to their initial long-run equilibrium. What happens to short-run real GDP? a) goes up b) goes down c) stays the same d) unknowable What happens to short-run real interest rates? a) goes up b) goes down c) stays the same d) unknowable What happens to short-run inflation? a) goes up b) goes down c) stays the same d) unknowable What happens to long-run real interest rates? a) goes up b) goes down c) stays the same d) unknowable What happens to long-run inflation? a) goes up b) goes down c) stays the same d) unknowable
What is the Keynesian prescription for recession? For inflation?
The AD/AS model is static. It shows a snapshot of the economy at a given point in time. Both economic growth and inflation are dynamic phenomena. Suppose economic growth is 3 per year and aggregate demand is growing at the same rate. What does the AD/AS model say the inflation rate should be?
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.