The macroeconomy is depicted by the graph to the right. a. Suppose that AD has changed due to higher real interest rates. Using the line drawing tool, draw this new line and label it 'D₁". Carefully follow the instructions above, and only draw the required objects. b. The new short-run equilibrium price level has and real GDP has c. Thus, in the short run it is d. The cost of producing below the full employment level of real GDP is to produce below the full employment level of real GDP.

The macroeconomy is depicted by the graph to the right. a. Suppose that AD has changed due to higher real interest rates. Using the line drawing tool, draw this new line and label it 'D₁". Carefully follow the instructions above, and only draw the required objects. b. The new short-run equilibrium price level has and real GDP has c. Thus, in the short run it is d. The cost of producing below the full employment level of real GDP is to produce below the full employment level of real GDP.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter10: Aggregate Supply

Section: Chapter Questions

Problem 2.3P

See similar textbooks

Similar questions

09. The left-hand Which of the following statements is tru about the diagrams above depicting the macroeconommy in both Keynesian and Classical frameworks and a change from AEo to AE* and ADo to AD*? a) The left-hand diagrams show the effect of an increase in Aggregare Expenditures (and Aggregate Demand), where the short-run Aggregate Supply is horizontal, meaning a constant products price level. b) The right hand diagrams show the effect of an increase in Aggregate Expenditrues (and Aggregate DEmand), where short-run Aggregate Supply is vertical (constant Aggregate Quantity Supplied). c) The left-hand diagrams illustrate the Keynesian range of the shor-run Aggregate Supply curve, where Keynesian expansionary policy does not cause any inflation and thus is very effective. d) The right-hand diagrams illustrate the Classical or Monetarist range of the short-run Aggregate Supply curve, where Keynesian expansionary policy is totally dissipated in…
question 3Consider the AS-AD and three-equations models of a closed economy discussed in the course.(a). Write down the expressions for the AS and AD curves and interpret the expressions: what is the intuition behind the two curves? What must be true of the model parameters and variables in the long-run equilibrium, i.e. in the steady state?(b). Analyse the effects of an oil supply shock that causes a temporary increase in inflation, using the three-equation model. Assume that the shock lasts for one-period and then assumes the value 2%. Describe the mechanisms that bring the economy back to long-run equilibrium. What happens to aggregate demand?(c). Consider an economy that starts out in steady state when the central bank decides to make the inflation target more ambitious. Analyse the effects of a decrease in the inflation target from ? to ??. Explain the mechanisms behind the adjustment to the new steady state.
a. What are the short-run equilibrium real GDP and price level in 2019?b. What is the long-run equilibrium real GDP?c. Is the short-run macroeconomic equilibrium a full-employment equilibrium, belowfull-employment equilibrium, or above full-employment equilibrium?d. In transition to the long run, how would the wages in this economy change?e. Following from d, explain how would the short run supply curve move to its long runposition, as the changes in the nominal wages take effect.f. What will the long run price level be?
a. write down the expressions for the AS and AD curves and interpret the expressions. what is the intuition behind the two curves? what must be true of the model parameters and variables in the long run equilibrium? b. analyze the effects of an oil supply shock that causes a temporary increase in the inflation, using the three-equation model. assume that the shock lasts for one period and then assumes the value 2%. describe the mechanisms that bring the economy back to long-run equilibrium. what happens to aggregate supply? c. consider an economy that starts out in steady state when the central bank decides to make the inflation target more ambitious. analyze the effects of a decrease in the inflation target from m to mt. explain the mechanism behind the adjustment to the new steady state.
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.
Consider a closed economy, where wages are sticky in the short run. The consumption function isC = c0 + c1(Y − T ), where the marginal propensity to consume c1 is equal to 0.75. Initially the economy is in equilibrium at Y = Y* and P = P e, where P e is the price level that was expected when agents agreed their fixed nominal wage contracts. The short-run aggregate supply curve (SRAS) is horizontal. Suddenly the government increases government spending G by $500. 1. By how much will output Y change (compared to its initial level before the change in G) in the long run, after wage contracts are renegotiated? 2. By how much will consumption C change (compared to its initial level before the change in G) in the long run, after wage contracts are renegotiated? 3. By how much will investment I change (compared to its initial level before the change in G) in the long run, after wage contracts are renegotiated?
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)?
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?
Suppose the economy is at its long- run equilibrium when there is a sudden increase in wealth. Using IS-MP, AD-IA answer compare the following variables to their initial long-run equilibrium. What happens to short-run real GDP? a) goes up b) goes down c) stays the same d) unknowable What happens to short-run real interest rates? a) goes up b) goes down c) stays the same d) unknowable What happens to short-run inflation? a) goes up b) goes down c) stays the same d) unknowable What happens to long-run real interest rates? a) goes up b) goes down c) stays the same d) unknowable What happens to long-run inflation? a) goes up b) goes down c) stays the same d) unknowable
Please note that this is a multi part quesition; thank you so much for your time and effort it means so much to me! Figure 1: Hayek’s (Classical) AD-AS Model (Image normally goes here) Part 1: Why does Hayek’s aggregate supply curve always lead to an equilibrium level of national output equal to the full-employment level of real GDP? Part2: 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? Part 3: 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?
Supply shocks and demand management Assume that the economy starts at a natural level if output. now suppose thee is an increase in the price of oil. a) In a AS-AD diagram show what happens to output and the price level in the short run and the medium run b) what happens to the unemployment rate in the short run? in the medium run?
10. Which of the following are reasons why the short-run Aggregate Supply curve shown in the right-hand diagrams may be vertical? a) The economy at this level of real GDP would be operating beyond the full-employmetn level. b) Inflationary expectations have set-in so, the owners of resources are acting on these inflationary expectations and insisting on higher resource prices in anticipation of future products price inflation. c) Short-run Aggregate Suply in the Classical model is always constant. d) All the above e) Only (a) and (b) are true. f) None of the above.