;, ) Suppose Switzerland is initiallyat full employment (Y = Y'). Suddenly the Covid-19 pandemic hits the economy. Analyzethe effects of the Covid-19 pandemic in the AA-DD diagram.' We refer to this equilibriumpoint as C.Why did aggregate demand fall? List three reasons.For now, assume thataggregate demand fell due to a decrease in the consumption multiplier c < c, where c isthe previous level of the consumption multiplier. Imagine the government tries to stimulateaggregate demand through a tax cut (i.e., lower T). Is the increase in aggregate demandhigher with the pandemic consumption multiplier cº or the normal consumption multiplierc? Do households save a larger or smaller fraction of their income with the consumptionmultiplier c compared to a situation with a consumption multiplier c/?The Covid-19 pandemic did not only have effects on demand, but also on sup-ply. In particular, many countries are experiencing surges of inflation, whereas inflationin Switzerland remains relatively low. Consider the AA-DD model and start again fromfull employment. Analyze the effects from an increase in the foreign price level P*. Forsimplicity, assume that the domestic price level P remained constant.

This pandemic and lockdown in many countries have impacted badly of their economic activities and…

} , ) Suppose Switzerland is initially at full employment (Y = Y'). Suddenly the Covid-19 pandemic hits the economy. Analyze he effects of the Covid-19 pandemic in the AA-DD diagram.' We refer to this equilibrium point as C. Why did aggregate demand fall? List three reasons. For now, assume that aggregate demand fell due to a decrease in the consumption multiplier c < c, where cf is he previous level of the consumption multiplier. Imagine the government tries to stimulate aggregate demand through a tax cut (i.e., lower T). Is the increase in aggregate demand nigher with the pandemic consumption multiplier c° or the normal consumption multiplier J? Do households save a larger or smaller fraction of their income with the consumption nultiplier cC compared to a situation with a consumption multiplier c? The Covid-19 pandemic did not only have effects on demand, but also on sup- oly. In particular, many countries are experiencing surges of inflation, whereas inflation n Switzerland remains relatively low. Consider the AA-DD model and start again from ull employment. Analyze the effects from an increase in the foreign price level P*. For simplicity, assume that the domestic price level P remained constant.

} , ) Suppose Switzerland is initially at full employment (Y = Y'). Suddenly the Covid-19 pandemic hits the economy. Analyze he effects of the Covid-19 pandemic in the AA-DD diagram.' We refer to this equilibrium point as C. Why did aggregate demand fall? List three reasons. For now, assume that aggregate demand fell due to a decrease in the consumption multiplier c < c, where cf is he previous level of the consumption multiplier. Imagine the government tries to stimulate aggregate demand through a tax cut (i.e., lower T). Is the increase in aggregate demand nigher with the pandemic consumption multiplier c° or the normal consumption multiplier J? Do households save a larger or smaller fraction of their income with the consumption nultiplier cC compared to a situation with a consumption multiplier c? The Covid-19 pandemic did not only have effects on demand, but also on sup- oly. In particular, many countries are experiencing surges of inflation, whereas inflation n Switzerland remains relatively low. Consider the AA-DD model and start again from ull employment. Analyze the effects from an increase in the foreign price level P*. For simplicity, assume that the domestic price level P remained constant.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter16: Monetary Policy

Section16.A: Policy Disputes Using The Self Correcting Aggregate Demand And Supply Model

Problem 3SQP

See similar textbooks

Similar questions

The short run aggregate supply curve was constructed assuming that as the price of outputs increases, the puce of inputs stays the same. How would an increase in the prices of important inputs, like energy, affect aggregate supply?
If the economy is operating In the Keynesian zone of the SRAS curve and aggregate demand falls, what is likely to happen to real GDP?
Explain why the short-run aggregate supply curve might be vertical in the neoclassical zone of the SRAS curve. How might we tell if we are in the neoclassical zone of the AS?
Explain why the short-run aggregate supply curve might be fairly flat in the Keynesian zone of the SRAS curve. How might we tell if we are In the Keynesian zone of the AS?
In your view, is the economy currently operating in the Keynesian, intermediate or neoclassical portion of the economys aggregate supply curve?
You are hired by the Council of Economic Advisors (CEA) as an economic consultant.The chairperson of the CEA tells you that she believes the current unemployment rate istoo high. The unemployment rate can be reduced if aggregate output increases. She wantsto know what policy to pursue to increase aggregate output by 300 billion TL. The bestestimate she has for the MPC is 0.8. Which of the following policies should yourecommend?a) Increase government purchases by 75 billion TL.b) Reduce taxes by 75 billion TL.c) Reduce taxes by 75 billion TL and to increase government purchases by 75 billion TL.d) Reduce the budget deficit by 300 billion TL
When the economy is experiencing a recession, why would aneoclassical e conomist be unlikely toargue for aggressive policy to stimulate aggregate demandand return the economy to full employment? Explain your answer.
11. Which of he following statements accurately explain the scenario illustrated by these diagrams? a) Assuming ADo and AEo are the original positions of the AD and AE curves respectively, the original situation illustrated is on of a recessionary gap of 10. b) To restore full-employment equilibrium Aggregate Expenditures must be increased to AE1 which is equivalent to shifting the AD curve to AD1 c) Because the short-run Aggregate Supply (AS) curve is upward sloping, the shift in AD will be associated with some products price inflation. This will cause the AE curve to decline from AE1 to AE* because of the wealth, interest rate, and trade effects of inflation. d) All the above. e) Only (a) and (b) are true f) None of the above.
E1 Given the event below, describe the effect on the aggregate demand curve (AD). A.No effect B.Increase C.Decrease - A. B. C. Interest rates increase - A. B. C. Income levels increase - A. B. C. Price level decrease - A. B. C. Oil prices decrease - A. B. C. Government authorizes a large spending package for the purchase of weapons to be sent to Ukraine - A. B. C. Price level increase
1. In the following table, determine how each event likely effects potential output (a.k.a., long-run aggregate supply). Direction of Potential Output Shift Event Left Right No Shift The government allows more immigration of working-age adults. For environmental and safety reasons, the government requires that the country’s nuclear power plants be permanently shut down. An investment tax credit increases the rate at which firms acquire machinery and equipment. 2. In the following table, determine how each event affects the position of the aggregate demand curve. Direction of AD Curve Shift Event Left Right No Shift A decrease in consumer confidence (suggests people believe a contraction/recession coming) A decrease in individual income tax rates An increase in the value/price of housing 3. What effect would an increase in aggregate demand…