Suppose that the oil price sharply increased for a while, which increased production costs, causing an adverse supply shock. A. Use the AD-AS model to show the effects on output and the price level in both the short- run and long-run. B. Show the adjustment process of the economy from the short-run to the long-run. C. What is the effect on unemployment in short-run and long-run?
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1. Suppose that the oil price sharply increased for a while, which increased production costs, causing an adverse supply shock.
A. Use the AD-AS model to show the effects on output and the price level in both the short- run and long-run.
B. Show the adjustment process of the economy from the short-run to the long-run.
C. What is the effect on
D. Can policymakers do something to accommodate this shock? Would the outcome be different in this case?
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- In a Keynesian framework, using an AD/AS diagram, which of the following government policy choices offer a possible solution to recession? Which offer a possible solution to Inflation? A tax Increase on consumer income. A surge in military spending. A reduction in (axes for businesses that Increase investment. A major Increase in what the U.S. government spends on healthcare.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?b) Now suppose that a stock market crash causes aggregate demand to fall. Use your diagram to show what happens to output and the price level in the short-run . What happens to the unemployment rate? C) Use the sticky-warge theory of aggregate supply to explain what will happen to output and the price level in the long run(assuming no change in policy).What role does the expected price level play in this adjustment? Be sure to illustrate your analysis in a graph.
- When there is a shockto the economy and GDP declines, how much of the decline is due to a changein potential output and how much to a change in short-run output?Assuming that the booming economy is currently at an inflation rate such that unemployment is below the natural level. (а) How does the economy return to the natural rate of unemployment if this inflation rate persists? (b) the government wants to bring the output back to the natural level by changing the tax rate, how should it respond?No written by hand solution An economist needs to predict the real wage rate, employment, output, real interest rate, consumption, investment, and price level. The economy is hit with a shock, which the economist thinks is a temporary adverse supply shock. (a) If you were the economist, what would be your forecasts for each of the variables listed above (rise, fall, and no change) in general equilibrium? (b) What if the shock was due to people's reduced expectations about their future income? Which variables did you forecast correctly, and which did you forecast incorrectly in part (a)?
- 1.) The Keynesian AD-AS model describes what happens with price levels when aggregate demand increases. Could you find any evidence from the last ten-fifteen years that might support AD-AS model descriptions of demand-pull inflation, cost-push inflation, and recession? For example, you could find data on the GDP’s of any two countries from 2000 to 2017 to support your findings. 2.) In macroeconomics, the immediate short run is known as a length of time when both input prices and output prices are fixed. In the short-run, input prices are fixed but output prices are variable. In the long run, input prices and output prices can vary. What happens in the immediate short-run when AD falls from AD to AD2 to the price level and output? What happens in the short-run when AD falls from AD to AD2 to the price level and output? What will happen in the long-run?a. Suppose the Australian government announces that it will bring the federal budget deficit to zero, over the next ten (post-pandemic) years, with no change in tax rates. Describe the effects of such a policy according to the three business cycle models, assuming that the policy is fully credible. b. How do new Keynesian ideas about price setting and inflation expectations affect the short-run aggregate supply curve? Explain.11) During the 1970s and 1980s, macroeconomists were busy integrating the insights of which of the following into their ideas about the economy? A) real business cycle theory B) Keynesian theory C) supply side economics D) classical macroeconomics E) none of the above 12) Which of the following events led to the crisis in macroeconomics and to the development of rational expectations theory? A) the Great Depression B) the stock market crash of 1987 C) the stock market speculative bubble of the late 1990s D) stagflation in the 1970s E) large budget deficits in the 1980s 13) Milton Friedman attributed the Great Depression primarily to A) the government's failure to respond to an increase in the budget deficit. B) a reduction in the money supply. C) economists' and policy-makers' failure to acknowledge their limited knowledge. D) the failure of wages to rise. E) inaccurate expectations by consumers and firms. 14) Which…
- 3 . An economy experiences an adverse supply shock. a) Draw an AD-AS diagram to illustrate the effect of the shock. Be sure to include the LRAS line. b) What happens to output in the short run? What form of output gap (positive or negative) is formed? What happens to the aggregate price level in the short run? c) How will the long run equilibrium be restored? (Assume there is no fiscal and no monetary policy to help the process.) Explain and add this to your diagram. d) Does the process create inflation or deflation?If the economy goes into a recessionary gap, a.) How will the change in wages affect short run AS and why?b.) As short run AS adjusts, what will happen to price level P and spending for output AD?c.) When will the adjustments in the labor market, wages, and AS stop and why?Hi, could you help me solve this problem? It is often argued that the effect of a demand shock depends on the state of the economy. In particular, a given increase in aggregate demand may induce a larger increase in inflation (or price level) if the output gap is initially positive (output exceeds natural output) than if the output gap is initially negative. The argument is that when economy’s overall production capacity is almost fully used, firms cannot expand output much in response to an increase in demand.t Draw AD and AS curves that are consistent with these ideas and explain them briefly.