The following events have occurred at times in the history of the United States 1. The world economy goes into an expansion. 2. U.S. businesses expect future profits to rise. 3. The government increases its expenditure on goods and services in a time of war or increased international tension. Explain the combined effects of these events on U.S. real GDP and the price level, starting from a position of long-run equilibrium. The graph shows an economy in long-run equilibrium. The world economy goes into an expansion, U.S. businesses expect future profits to rise, and the government increases its expenditure on goods and services in a time of war or increased international tension. Draw one new curve that shows the combined effect of the three events. Label it. Draw a point at the new short-run macroeconomic equilibrium. 140 130 Price level (GDP deflator, 2012-100) 120- 110- 100+ 00- 80+ LAS 18.0 SAS AD 19.0 20.0 21.0 Real GDP (trillions of 2012 dollars) www.Draw and the nhiarte enanified in the mine 220

The following events have occurred at times in the history of the United States 1. The world economy goes into an expansion. 2. U.S. businesses expect future profits to rise. 3. The government increases its expenditure on goods and services in a time of war or increased international tension. Explain the combined effects of these events on U.S. real GDP and the price level, starting from a position of long-run equilibrium. The graph shows an economy in long-run equilibrium. The world economy goes into an expansion, U.S. businesses expect future profits to rise, and the government increases its expenditure on goods and services in a time of war or increased international tension. Draw one new curve that shows the combined effect of the three events. Label it. Draw a point at the new short-run macroeconomic equilibrium. 140 130 Price level (GDP deflator, 2012-100) 120- 110- 100+ 00- 80+ LAS 18.0 SAS AD 19.0 20.0 21.0 Real GDP (trillions of 2012 dollars) www.Draw and the nhiarte enanified in the mine 220

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter9: Classical Macroeconomics And The Self Regulating Economy

Section: Chapter Questions

Problem 15QP

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Similar questions

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in taxes, then in the short run, real GDP will a. rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected. b. fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected. c. rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower. d. fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.
Consider an economy that uses exclusively labor and capital to produce.Suddenly, the government of the economy plans to permanently increase the level ofgovernment purchases. Please use words and figures to illustrate your answers.(1) Suppose the economy is a closed one. How does the long-run GDP of the economychange because of the increased government purchases? (2) Will your answer to (1) be changed if the economy is an open one? Explain youranswers briefly.(3) Suppose the economy is a closed one. Will the increased government purchaseschange the equilibrium interest rate?
Use graphical analysis to show how each of the following would affect the economy first in the short run and then in the long run. Assume that the United States is initially operating at its full-employment level of output, that prices and wages are eventually flexible both upward and downward, and that there is no counteracting fiscal or monetary policy.a. Because of a war abroad, the oil supply to the United States is disrupted, sending oil prices rocketing upward. b. Construction spending on new homes rises dramatically, greatly increasing total U.S. investment spending. c. Economic recession occurs abroad, significantly reducing foreign purchases of U.S. exports.
1. In the diagram for this exercise, use aggregate demand and short-run and long-run aggregate supply curves to show an economy at a short-run equilibrium with a contrac- tionary gap of $0.5 trillion when potential output is $10 trillion.Then illustrate how the gap would close in the long run if the economy is self-correcting. 2. In the diagram, use aggregate demand and short-run and long-run aggregate supply curves to show an economy at a short-run equilibrium with an expansionary gap of $0.5 trillion when potential output is $10 trillion.Then illus- trate how the gap would close in the long run using an activist approach.
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to “Calculate,” you must show how you arrived at your final answer. Assume that the United States economy is currently in a recession in a short-run equilibrium. e. Now assume instead that the government and the Federal Reserve take no policy action in response to the recession. i. In the long run, will the short-run aggregate supply increase, decrease, or remain unchanged? Explain. ii. In the long run, what will happen to the natural rate of unemployment?
The context is a large negative shock to autonomous consumption in an open economy. You may assume the economy is initially at a medium run equilibrium. Aggregate demand can decline for many reasons. Give a specific example of when you would choose to model the onset of a recession by a fall in autonomous consumption and explain why. Use graphs if possible.
Consumption $550 Investment $200 Exports $60 Imports $90 Government Spending $100 Taxes $70 Potential Real Output (Long run Real Output) $800 The above macroeconomic data are from the economy in 2019. Dollar values are measured in billions of 2019 dollars. (a) Is the economy facing a recessionary gap, an inflationary gap, or neither? Explain using numbers. (b) Based on your answer to part (a), how will the economy adjust in the long run in the absence of any government policy action? Explain.
Suppose England's economy is in long-run equilibrium. As a result of the coronavirus, the British government orders all non-essential businesses to close and issue “shutter in” and other “stay at home” directives requiring its citizens and residents not to leave their residences absent emergencies and/or to purchase food and groceries from markets (that is, people cannot, for example, go to restaurants, movies or sporting events and the like.) If so, then we would predict that in the short-run England's A. real GDP will fall and the price level might rise, fall, or stay the same. B. real GDP will rise and the price level might rise, fall, or stay the same. C. the price level will rise, and real GDP might rise, fall, or stay the same. D. the price level will fall, and real GDP might rise, fall, or stay the same
We have an economy with two major sectors: Sector I produces the means of production, and Sector II produces the means of consumption. The constant capital advanced in Sectors I and II are $20 billion and $30 billion, respectively. Assume that the variable capital advanced in Sectors I and II are $20 billion and $10 billion, respectively. Also assume that the rate of surplus value is 100% in each sector. Is the economy balanced or will a macroeconomic crisis occur due to the un-coordination between the two sectors? Explain with reference to the numerical values in this example.
Explain how an economy can return back to a long run equilibrium following a negative supply shock, if the policy makers (ie: both fiscal and monetary fiscal policy makers), don't intervene in the economy to combat either the unemployment or the inflation caused by the negative supply shock.
The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $600 billion. Suppose the government increases spending on building and repairing highways, bridges, and ports.
For each of the following scenarios predict how the price level and output will change over time from immediate impact to long-run impact. In each case, consider an economy that was initially producing at its level of potential output. a. The government passes legislation that increases corporate taxes by 25%. b. Economies around the globe are experiencing a time of prosperity and, as a result, demand for U.S. exports increases.