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- Illustrate each of the following situations with a graphshowing AS and AD curves, and explain what happensto the equilibrium values of the price level and aggregateoutput:a. A decrease in G with the money supply held constant bythe Fedb. A decrease in the price of oil with no change ingovernment spendingc. An increase in Z with no change in governmentspendingd. An increase in the price of oil and a decrease in Goptions:a contractionary fiscala contractionary monetarya recessionaryan expansionary fiscalan expansionary monetary an inflationaryequal to greater thangrew inflationless thanrecededthe same asunemploymentPls help with below homwork. Explain and illustrate graphically the possible fiscal and monetary policy responses to a demand shock in the Keynesian model. What are the limitations of fiscal and monetary policy in the Keynesian model when a demand shock disturbs the economy?
- Exercise 1 a) Use the equation for the circular flow of the real economy to give an overview of thedemand side components and tie players in the macroeconomy to each of thesecomponents.b) How can you use the equation for the circular flow to discuss the effect of fiscal policyand monetary policy?c) As a follow up from part b), discuss the statement: “During the pandemic, expansionarymonetary policy did not boost the economy as expected”.d) For the following two cases, use the equation for the real interest rate to give anexample for each case using numbers for real interest rate, nominal interest rateand inflation. Explain each number you select.Case 1: A situation where it is a real cost if you borrow money.Case 2: A situation where it is a real gain if you borrow money.e) Let GDP (Gross Domestic Product) as a simplification, only be one good, apples. Find theGDP deflator if nominal GDP = 100 and real GDP = 20 and explain these three numbersusing apples as an example.f) As a follow up…The economy begins in longcrun equilibrium. Thenone day, the president appoints a new chair of theFederal Reserve. 11\is new chainnan is well known forher view that inflation is not a major problcn1 for aneconomy.a. How would this news affect the price level thatpeople would expect to prevail?b. How would this change in the expected pricelevel affect the nonlinal wage that workers andfmn.s agree to in their new labor contracts?c. How would this change in the nonlinal wageaffect the profitability of producing goods andservia,s at any given price level?d. How docs this change in profitability affect theshort-run aggregate-supply curve?e. ff aggregate demand is held constant, how docsthis sllift in the aggregate-supply curve affect theprice level and the quantity of output produced?f. Do you think this Fed chainnan was a goodappointment?O a) A to B CF Ans Ski b) B to A O c) C to D d) D to C e) A to E O f) C to E Refer to the diagram. If the economy is in an inflationary gap, and the government uses restrictive fiscal or monetary policy to bring down prices, there will be a movement from point to point -- LRPC Prtential veal GoP SRPC
- 7 ts eBook ferences The graph below depicts an economy where an increase in aggregate demand has caused inflation. Assume the government decides to conduct fiscal policy by changing taxes to bring inflation under control. Price Level 180 160 140 120 100 80 60 40 0 Fiscal Policy LRAS AD AS AD₁ 100 200 300 400 500 600 700 800 Real GDP (billions of dollars)Which of the following describes Keynes' position in fighting recessions? O A. Keynes emphasized fiscal policy, which affects demand directly through investment and interest rates. B. Keynes emphasized monetary policy, which affects demand indirectly through taxes and government spending. OC. Keynes emphasized monetary policy, which affects demand indirectly through investment and interest rates. O D. Keynes emphasized fiscal policy, which affects demand directly through taxes and government spending. In the short run, the Phillips curve shows relationship between unemployment and inflation. As the Phillips curve evolved, Friedman proved that ir the long run, higher levels of inflation yment. an inverse a directThe table below shows aggregate demand and aggregate supply schedules in a hypothetical economy, Athabasca, whose MPC is equal to 0.75 and whose natural unemployment rate is estimated to be 8.5 percent. Price Level Real GDP ADe (2012 $ (2012= 100) billions) 420 450 500 550 600 150 140 130 120 110 Price Level (2012 = 100) a. Draw a graph showing Athabasca's aggregate demand curve, ADO, and its aggregate supply curve, AS. Plot all five points of the aggregate demand curve and aggregate supply curve. 160 140 120 100 80 60 40 20 0 Real GDP AD1 (2012 $ billions) 100 200 300 400 500 600 Real GDP (2012 $billions) 700 Tools AD₁ AS O Real GDP AS (2012 $ billions) 465 450 420 360 ADO Ⓡ
- Using a correctly labelled aggregate demand and aggregate supply diagram, show how the increase in investment will affect each ofthe following in the short run.i. Output ii. The price level c. Identify one fiscal policy action that could counter the increase in investment. Explain how this policy will affect each of the following.i. Output ii. The price level iii. Nominal interest rates d. i. Identify one monetary policy action that could counter the increase in investmentsii. Using a correctly labelled money market graph, show how this policywill affect nominal interest ratesThere is currently a political and academic controversy whether or not stimulus packagesagainst the Covid-induced economic recession will cause inflation. Professor OlivierBlanchard has warned that the stimulus package of the US-administration may lead toinflation in the US. However, he does not see inflation dangers emanating from stimulusprograms in the Eurozone. The Next Generation EU program is not only considered to be a stimulus program but also tobe a growth program, which by spending on infrastructure and climate-related investmentsis expected to lead to an increase in potential output.Analyze in an AD-AS model the impact of economic growth on actual GDP and the pricelevel. Also elaborate on the role that an additional demand stimulus could play.asap