Supply shocks and demand management Assume that the economy starts at a natural level if output. now suppose thee is an increase in the price of oil. a) In a AS-AD diagram show what happens to output and the price level in the short run and the medium run b) what happens to the unemployment rate in the short run? in the medium run?

Supply shocks and demand management Assume that the economy starts at a natural level if output. now suppose thee is an increase in the price of oil. a) In a AS-AD diagram show what happens to output and the price level in the short run and the medium run b) what happens to the unemployment rate in the short run? in the medium run?

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter10: Aggregate Supply

Section: Chapter Questions

Problem 2.3P

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Using a separate set of AS-AD diagrams for each of the following scenarios, explain what is likely to happen to the output (Y), unemployment, price level, and inflation in the short run, making sure to explain the shifts in any curve: a. U.S. households decide to save more and more than doubles the total savings per year. b. With the news of rapid vaccinations, the consumer and business confidence surges. c. Natural gas is now the most important source of power in the U.S. And, since the advent of fracking, it is also the cheapest. New administration imposes a ban on fracking which increases the prices of not only natural gas, but all carbon fuels. d. The U.S. is currently described as mostly recovered from the pandemic induced recession. Congress and the White House enacts a $2 Trillion “infrastructure” spending.
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Suppose in 2020 the US economy was in a short run equilibrium below full employment, such that GDP was $19 trillion and the GDP price Index was 240. Recent policy in the form of government spending increases and tax decreases will increase aggregate spending. Depict this in the AD-AS framework. How will the unemployment rate compare to the natural rate of unemployment?
Suppose that the oil price sharply increased for a while, which increased production costs, causing an adverse supply shock. Use the AD-AS model to show the effects on output and the price level in both the short- run and long-run. Show the adjustment process of the economy from the short-run to the long-run. What is the effect on unemployment in short-run and long-run? Can policymakers do something to accommodate this shock? Would the outcome be different in this case?
Suppose the economu is operating at less than full employment. an increase in aggregate demand will result in: A. An increase in the general price level and perhaps an increase in the general price level B. A decrease in the general price level and perhaps a decrease in aggregate demand C. An increase in aggregate output and perhaps a decrease in the general price level D. An increase in the general price level and perhaps a decrease in aggregate output
n the AD-AS model, assume that an economy’s aggregate demand, denoted by QD=400−P, and SR aggregate supply, denoted by QS=P, currently intersect at price level = $200 and the full employment output level = 200. What curve would have shifted if a new short-run equilibrium were to occur at an output level of 300 and a price level of $300? Group of answer choices SRAS shifts leftward. AD shifts leftward. SRAS shifts rightward. AD shifts rightward.
For each of the following events, explain the short- run and long-run effects on output and the price level with AD-AS model, assuming policymakers take no action. (1) The central government decreases spending on infrastructures. (2) A new technology applied raises productivity. (3) A reduction in products overseas causes foreigners to buy more Chinese goods.
Draw the AS-AD model for the following scenario: The economy is hit by a negative AD shock. Assume there is no monetary or fiscal policy implemented, and the AD shock is permanent. Make sure to include the initial equilibrium, the short-run equilibrium, and the new long-run equilibrium. Label the axes and the curves.
JobKeeper was designed to keep people employed and ‘sustain’ the economy through the enforced lockdown. Using the static AD/AS model explain. Use the static AD-AS model to explain how the JobKeeper policy worked to sustain the economy (even though unemployment increased).
(Please attach a graph showing your work for each question) Suppose that the oil price sharply increased for a while, which increased production costs, causing an adverse supply shock. Use the AD-AS model to show the effects on output and the price level in both the short- run and long-run. Show the adjustment process of the economy from the short-run to the long-run. What is the effect on unemployment in short-run and long-run? Can policymakers do something to accommodate this shock? Would the outcome be different in this case?
(Please attach a graph showing your work for each question) Suppose that the oil price sharply increased for a while, which increased production costs, causing an adverse supply shock. Use the AD-AS model to show the effects on output and the price level in both the short- run and long-run. Show the adjustment process of the economy from the short-run to the long-run. What is the effect on unemployment in short-run and long-run? Can policymakers do something to accommodate this shock? Would the outcome be different in this case? Suppose that the coronavirus pandemic (COVID 19) in 2020 has resulted in a leftward shift of the aggregate demand curve (it has also shifted the short-run aggregate supply to the left, butlet’s ignore this effect here for simplification). Use the aggregate-demand/aggregate-supply model to show the effects on output and the price level/inflation in both the short run and long run (assume that the short-run aggregate supply curve is upward…
Consider the AS-AD and three-equations models of a closed economy. Write down the expressions for the AS and AD curves and interpret the expressions: what is the intuition behind the two curves? What must be true of the model parameters and variables in the long-run equilibrium, i.e. in the steady state? Analyse the effects of an oil supply shock that causes a temporary increase in inflation, using the three-equation model. Assume that the shock lasts for one-period and then assumes the value 2%. Describe the mechanisms that bring the economy back to long-run equilibrium. What happens to aggregate demand? Consider an economy that starts out in steady state when the central bank decides to make the inflation target more ambitious. Analyse the effects of a decrease in the inflation target from ? to . Explain the mechanisms behind the adjustment to the new steady state.