Answered: The economy of Pakistan has faced both…

The economy of Pakistan has faced both a supply demand shock in the first quarter of 2020. Using the AS/AD model explain how you expect the economy to behave in the short and long run.

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter10: Kenesian Macroeconomics And Economic Instability: A Critique Of The Self Regulating Economy

Section: Chapter Questions

Problem 3WNG

See similar textbooks

Related questions

Q: Draw and properly label an AD-AS model to show Keynesian, intermediate, and neoclassical zones.…

Q: CNBC on Jan 26, 2022 reports, “Federal Reserve points to interest rate hike coming in March".…

Q: Using the AD/AS model, explain how each of the following hypothetical Government policies would…

A: Aggregate demand refers to the situation when the economy as a whole is considered to want something…

Q: Refer to the graphs. Which of the following best represents a negative demand shock when prices are…

A: Inflexible price refers to the rigidity of the prices. That means the price will be constant with…

Q: Discuss the argument that activist policies are necessary following large negative economic shocks…

A: To stabilize the economy monetary and fiscal policies are used. The goal of both the policy is to…

Q: With respect to your knowledge of the economic impact of the coronavirus outbreak, explain how the…

A: Aggregate supply is an economy's gross domestic product (GDP), the total amount a nation produces…

Q: Great Depression. Suppose President Roosevelt's government had not launched the "New Deal" to help…

A: *Answer: Let us assume that initially economy is at E, Jevel. OYF is the level. of full-employment…

Q: snip

A: Aggregate planning: It is the way toward creating, developing, and keeping a primer, rough timetable…

Q: Strikes across a wide range of industries in South Africa in the first half of 2020 can be…

A: Strikes across a wide range of industries in South Africa in the first half of 2020 can be…

Q: A number of countries, like Greece and the United Kingdom, have in the past few years responded to…

A: Since you have asked a question with multiple parts, we will solve the first three parts for you. To…

Q: True/False with explanation In the dynamic AS-AD model, a perfectly inelastic aggregate supply…

A: Central Bank is the apex bank in any country. It is responsible for all monetary policy…

Q: In the AD/AS model, what prevents the economy from achieving equilibrium at potential output?

A: Equilibrium will occur at the point where the aggregate demand (AD) & the aggregate supply (AS)…

Q: The price level rises, and this changes the real value of consumers’ wealth. Does this cause a…

A: The rise or fall in price level leads to movement along the demand curve other things being…

Q: What are supply shocks? Why are policy choices hard when there are negative supply shocks? Would you…

A: A supply shock occurs when an unexpected event alters the supply of goods or commodities, resulting…

Q: Q.1.10 Strikes across a wide range of industries in South Africa in the first half of 2020 can be…

A: Aggregate demand (AD) and aggregate supply (AS) models shows the market equilibrium that occurs at…

Q: Consider a standard AD-AS model. The economy is affected by the following sequence of events. In…

A: The aggregate demand (AD) refers to the summation of all the individual demands for different goods…

Q: According to Prof Martin "An increase in government spending drives up or increases the private…

A: Crowding out effect appears when the government adopts the policy of expansionary fiscal policy and…

Q: The standard AD-AS model suggests that frequent unpredictable swings in AD will lead to a business…

A: The aggregate demand (AD) shows the relationship between the total demand (real GDP) and the price…

Q: Q.1.10 Strikes across a wide range of industries in South Africa in the first half of 2020 can be…

A: Aggregate-demand curve for labour is shifted through a change in any variable that affects the…

Q: Using the static AS/AD model explain what impact covid-19 crisis have on the global economy?

A: The Covid-19 is an unusual macroeconomics shock. It impacted both supply and demand in the global…

Q: Which of the following is false in the dynamic AS-AD model? An increase in the natural level of…

A: AS-AD model: It refers to a model under which the economy can measure the national income with the…

Q: Consider a standard AD-AS model. If the marginal propensity to consume is zero, a temporary tax cut…

A: Here, MPC=0, which means all the income is saved or Income=MPS As we can see the purple line is the…

Q: Which of the following is Aggregate Demand (AD) directly related to in an AS/AD model? a)…

A: In the AS-AD model, aggregate demand describes the components of expenditure method of computing GDP…

Q: Using graphical illustration of AS-AD framework, show the effects of following events on real output…

A: D) When the government raises taxes by $100 billion: An increase in taxes will reduce the disposable…

Q: Refer to Figure 16-1. Suppose the economy is in short-run equilibrium below potential GDP and no…

A: The gap that depicts when the real actual level of output is less than the potential level of output…

Q: In a binding situation, changes in government .spending do not shift the AD curve :Select one True…

A: In a binding situation, the aggregate demand (AD) is vertical and the interest rate is always zero.…

Q: In a Keynesian economy, please show and explain how would reducing marginal tax rates affect income…

Q: Explain the fiscal and monetary policy used in the attached document using IS model and the AD model

A: Policy: It refers to the policies that is used by the government for the economic stabilization. The…

Q: importance of AD/AS models from a macroeconomic standpoint

A: Macroeconomics is that branch of economics that studies the aggregates of the economy such as…

Q: Consider a standard AD-AS model. An increase in the interest sensitivity of consumption and/or…

A: In an economy, the AD-AS model is used to make an analysis of the market condition, and AD-AS curves…

Q: Using graphical illustration of AS-AD framework, show the effects of following events on real output…

Q: Using an AS/AD framework to describe the events in the story, there would be a A) leftward shift in…

A: AD curve represents the aggregate demand in the economy and AS curve is a representation of the…

Q: Market Watch, May 24, 2018 discusses, "what happens if the oil rally turns into an 'oil shock' ".…

A: Aggregate demand (AD) is the sum total amount of commodities and services demanded in an economy at…

Q: True/False In the dynamic AS-AD model, a perfectly inelastic aggregate supply curve means the…

A: Central Bank is the apex bank in any country. It is responsible for all monetary policy…

Q: With respect to your knowledge of the economic impact of the coronavirus outbreak, explain how the…

A: Aggregate supply is an economy's gross domestic product (GDP), the total amount a nation produces…

Q: Hayek says that markers will heal themselves and that government should not intervene. How does the…

A: The aggregate supply curve shows the response of the aggregate supply to the fluctuations in the…

Q: “Policymakers would never respond by stabilizing output in response to a temporary positive supply…

A: The temporary supply shock leads to a shift in the aggregate supply curve down. This shift moves the…

Q: Can you show me a graphical representation of an IS-PC-MR model under the New Keynesian Philips…

A: In economics, macroeconomics refers to the study of the policies and fiscal measures which helps in…

Q: The government of South Africa responded to the COVID 19 pandemic by implanting a number of…

A: The pandemic has slowed down the economy of the country. Resulting there is lower demand and high…

Q: How does AD/AS Model Incorporates Economic Growth, unemployment, and inflation. Identify periods of…

A: Aggregate demand refers to the amount of sales proceeds which an entrepreneur actually except from…

Q: Concept of Hysteresis suggests that the economic shocks affect the economy only for a short time…

A: The economics is the study of human behavior in regard to the use of scarce resources that have…

Q: Strikes across a wide range of industries in South Africa in the first half of 2020 can be…

A: Strike in industries leads to fall in aggregate supply of goods.

Q: Using the AD-AS model, explain how the presence of wage and or price rigidities can lead to…

A: A demand shock is a sudden, unanticipated incident that briefly raises or decreases demand for a…

Q: If an economy starts in a long run equilibrium and then there is a large decrease in the stock…

A: Long-run equilibrium refers to an equilibrium where the aggregate demand curve and aggregate supply…

Q: Suppose an economy is hit by natural disaster and its natural resources decreases. Show graphically…

A: The AS-AD {"aggregate supply- aggregate demand"} model is described as a way of depicting the…

Question

The economy of Pakistan has faced both a supply demand shock in the first quarter of 2020. Using the AS/AD model explain how you expect the economy to behave in the short and long run.

Video Video

Expert Solution

Step 1

In the Pakistan Economy,The supply demand shock can be explained with the help of a diagram:

Here,The original AS-AD curve is given by AS and AD. A supply demand shock in the Pakistan Economy leads to a leftward shift of both the supply and demand curve as shown in the diagram. This leads to disequilibrium in the economy in the short-run and the economy operates somewhere in the shaded region.

Step by step

Solved in 2 steps with 1 images

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

The economy of Pakistan has faced both a supply demand shock in the first quarter of 2020. Using the AS/AD model explain how you expect the economy to behave in the short and long run. How does the decision to reduce the policy rate impact the economy. Explain using the ISLM model focusing on impacts on the goods and services market and the financial market.
Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayeks idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce?
Using the AD/AS model, show how fear of a recession is expected to affect an economy experiencing too much inflation
Using the AD-AS model, if consumers and business become more optimistic about the future direction of the economy and increase spending, then: a-long-run aggregate supply will decrease. b-aggregate demand will decrease. c-aggregate demand will increase. d-long-run aggregate supply will increase.
During 2000, there was a sharp reduction in stock prices and a sharp increase in the world price of crude oil. How will aggregate demand and aggregate supply in the United States be influenced by these two factors? Using the AD-AS model, explain the expected impact on output.
In the AD/AS model, what prevents the economy from achieving equilibrium at potential output?
In a Keynesian economy, please show and explain how would reducing marginal tax rates affect income and price levels in the name of AD-AS model.
question 1: In Figure 1 , how does the AD-AS model reflect the idea that governments cannot increase real GDP beyond an economy’s equilibrium level that the free-market economy is able to produce? Explain your answer.
In the AD/AS model, what happens if businesses expect higher future profits while inflationary expectations decrease simultaneously? Choose all that apply. Group of answer choices Real GDP decreases. The price level increases. The price level decreases. Real GDP may increase, decrease or remain unchanged. The price level may increase, decrease or remain unchanged. Real GDP increases.
"Tax cuts are more effective in generating the economy when the economy is in recession compared to at full employment." True or False? Show and explain your answer based on the AD-AS model.
Evaluate the importance of AD/AS models from a macroeconomic standpoint and analysis.
Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayek’s idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce? Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not?