Suppose we had several periods of 0 inflation. Then if we had a decrease in Aggregate Demand that caused a decrease in the Aggregate Price level, we should see which of the following in the short run? Explain your answer. a. inflation and higher employment b. lower inflation (which would be deflation given our premise) and higher employment c. inflation and lower employment d. lower inflation (which would be deflation given our premise) and lower employment e. none of the above

Suppose we had several periods of 0 inflation. Then if we had a decrease in Aggregate Demand that caused a decrease in the Aggregate Price level, we should see which of the following in the short run? Explain your answer. a. inflation and higher employment b. lower inflation (which would be deflation given our premise) and higher employment c. inflation and lower employment d. lower inflation (which would be deflation given our premise) and lower employment e. none of the above

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter14: Money And The Economy

Section: Chapter Questions

Problem 10QP

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Consider the Efficiency Wage story. Suppose we had several periods of 0 inflation. Then if we had a decrease in Aggregate Demand that caused a decrease in the Aggregate Price level, we would see which of the following in the short run? Select one of the following multiple choice answers and explain why you chose that answer. a. higher inflation and higher unemployment. b. lower inflation (which would be deflation given our premise) and higher unemployment. c. higher inflation and lower unemployment. d. lower inflation (which would be deflation given our premise) and lower unemployment. e. none of the above.
Suppose that a rise in consumer spending causes an expansion. 1. On the following graph, shift a curve or adjust the point to reflect the short-run effect of the rise in consumer spending. (Please use the image attached) 2. In the short run, inflation rises? falls? and unemployment rises? falls?. Now suppose that over time, expected inflation changes in the same direction that actual inflation changes. 3. After the expansion is over, the economy faces a worse? better? set of inflation–unemployment combinations.
(I know we aren't supposed to ask multiple questions in one, but this is my last question this month, so if you could please please answer all three I would be very greatful, thank you!) 5. The Short Run Aggregate Supply curve only shifts when there are changes in expectations about inflation, E[π]. If π0 is the initial inflation rate, which of the following must be true in initial equilibrium? a. E[π] < π0 b. E[π] = π0 c. Only the SRAS and DAD curves must intersect d. E[π] > π0 6. In the New Keynesian Model, assume that the goal of The Fed is to keep unemployment as low as possible. What is the appropriate response to a negative real shock? a. Increase the money supply, shifting DAD to the left b. Buy bonds, shifting DAD to the right c. Sell bonds, shifting DAD to the left d. Decrease the money supply, shifting DAD to the left e. None of the above 7. Money neutrality implies a. the Fed will not truly affect long run economic growth through monetary policy. b. monetary policy…
true or false Suppose that the central bank lost credibility in the sense that people no longer believe its inflation target (that is, inflation expectations are not `anchored’). In this case, both short-run output and long-run output do not increase in response to a permanently higher inflation target.
Explain what we can understand by expected inflation, inflation due to an increase in aggregate demand or inflation due to a decrease in aggregate supply.
According to the misperceptions theory of aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what they produce had increased, so they would increase production. increased, so they would decrease production. decreased, so they would increase production. decreased, so they would decrease production.
In which of the following situations will demand pull inflation fall? a) Rising aggregate supply b) Reduced taxes c) Rising incomes d) Decreased imports e) Aggregate demand rising with aggregate supply lags
Other things the same, when the price level rises more than expected, some firms will have Answer higher than desired prices which increases their sales. higher than desired prices which depresses their sales. lower than desired prices which increases their sales. lower than desired prices which depresses their sales. Question 25 According to the misperceptions theory of aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what they produce had Answer increased, so they would increase production. increased, so they would decrease production. decreased, so they would increase production. decreased, so they would decrease production.
Refer to the diagram. The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1. In the long run, demand-pull inflation is best shown as: A) a move from a to d. B) a shift of aggregate demand from AD1 to AD2 followed by a shift of aggregate supply from AS1 to AS2. C) a shift of aggregate supply from AS1 to AS2 followed by a shift of aggregate demand from AD1 to AD2. D) a move from d to b to a.
The Phillips curve represents the relationship between unemployment and inflation. You are required to think about the impact on the economy of movements along the curve. If the unemployment rate in the economy is steady at 4 percent per year, how does the short-run Phillips curve predict that the inflation rate will be changing, if at all? What will happen if the unemployment rate now rises to 7 percent per year? Assume there are no changes to inflation expectations. Provide an appropriate graph to support your discussion.
In the AD/AS model, a short-run inflationary boom can occur which returns to full employment in the long run because Select one: a. the inflation reduces profitability and output in the short run, but costs eventually fall and output is restored in the long run. b. the boom pushes up prices and salaries in the short run, reducing output, but companies attempt to restore profitability in the long run by pushing prices and salaries back down, which brings output back to full employment. c. aggregate supply is reduced in the short run, along with profit and output, but aggregate demand increases in the long run, along with profit and output, to bring the economy back to full employment. d. it takes a while for costs to catch up to inflation, so inflation boosts revenue, profit, and output in the short run, but the later-rising costs return profit and output to normal in the long run.
Starting from a zero rate of inflation, suppose some event decreases aggregate demand. Use flow diagrams and the labor market graph to explain what happens to wages and prices which results in the “wage-price spiral”. What happens to the rate of inflation?