Answered: Step 1) What happens in the short run…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter21: Unemployment

Section: Chapter Questions

Problem 41CTQ: Unemployment rates have been higher in many European countries in recent decades than in the United...

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Step 1) What happens in the short run to
equilibrium price level and aggregate quantity &
why? (Think about which curve shifts in which
direction and why & where is the new short run
equilibrium?)
Step 2) What happens to the initial equality
between price level and price expectations
because of COVID19?
Step 3) What happens to price expectations in
the long run? (The market adjustment phase)
Step 4) What happens next in the market
adjustment phase? (Think about which curve
shifts in which direction and why & where is the
new short run equilibrium?)
Step 5) What policies (you have to say who takes
these policies; congress/federal reserve) will be
taken to stop the market adjustment from kicking
in?

Answer 4)
Steps
Step 1) What happens in the short run to
equilibrium price level and aggregate quantity &
why? (Think about which curve shifts in which
direction and why & where is the new short run
equilibrium?)
Step 2) What happens to the initial equality
between price level and price expectations
because of COVID19?
Step 3) What happens to price expectations in
the long run? (The market adjustment phase)
Step 4) What happens next in the market
adjustment phase? (Think about which curve
shifts in which direction and why & where is the
new short run equilibrium?)
Step 5) What policies (you have to say who takes
these policies; congress/federal reserve) will be
taken to stop the market adjustment from kicking
in?
Your Answers

Question 4)
Consider a baseline long run steady state
equilibrium where output is 22 trillion dollars, and
the price level is 100. Note: price expectation is the
same as the price level at the long run steady state
equilibrium & unemployment is 5% or lower
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 long run steady state
equilibrium will be disrupted & what policies can
be taken to stop the market adjustment?
●
You should answer in the following steps

Definition Video Definition Point where the demand and supply curves intersect. At the equilibrium price the quantity supplied of a good is equal to the quantity demanded. When the market is not in equilibrium, market surplus or market shortage occurs. The region that is above the price equilibrium indicates market surplus and the region below the price equilibrium indicates market shortage. Video

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