Using the 3-equation model and provide a detailed period by period description of the adjustment process for the following scenario: The economy is hit by a permanent positive aggregate demand shock
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Using the 3-equation model and provide a detailed period by period description of the
adjustment process for the following scenario:
The economy is hit by a permanent positive aggregate
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- Using the 3-equation model provide a detailed period by period description of theadjustment process for the following scenarios:(a) The economy is hit by a temporary inflationary shock (b) The economy is hit by a permanent positive aggregate demand shockThe Canadian economy suffered two major shocks in 2008, leading to the severe recession of 2008–2009. One shock was related to oil prices; the other was the slump in both consumer and business confidence. This question analyzes the effect of these two shocks on GDP using the AD–AS model. Draw typical aggregate demand and short-run aggregate supply curves. Label the horizontal axis “Real GDP” and the vertical axis “Aggregate price level.” Label the equilibrium point E1, the equilibrium quantity Y1, and equilibrium price P1. Would an increase in oil prices cause a demand shock or a supply shock? Redraw the diagram from part (a) to illustrate the effect of this shock by shifting the appropriate curve. The New Housing Price Index, published by Statistics Canada, calculates that Canada’s home prices fell by an average of 3% in the 12 months between April 2008 and April 2009. Business fixed capital formation fell by 19% during the same period. Would the fall in home prices and business…Explain and demonstrate graphically the effects of a negative supply shock in both the short-run and long-run. (Hint: Use AD-AS framework)
- Detail the macroeconomic policies that might be used to tackle the effects of a severe negative supply shock and explain the dilemmas faced.Which of the following is true in the dynamic AS-AD model? Group of answer choices The dynamic aggregate demand curve is downward sloping because the central bank follows the Taylor principle. An increase in the natural level of output increases the long-run inflation rate. To control inflation, the central bank should increase the nominal interest rate by less than one for one in response to an increase in the inflation rate. The monetary policy rule determines the slope of the dynamic aggregate supply curve.The mainstream view of macroeconomic instability emphasizes sticky prices. To answer the following questions, modify the aggregate supply curve in the extended AD-AS model introduced in Chapter 35. First, imagine that both input and output prices are fifixed. What does the aggregate supply curve look like? If AD decreases in this situation, what will happen to equilibrium output and the price level? Next, imagine that input prices are fifixed, but output prices are flexible. What does the aggregate supply curve look like? In this case, if AD decreases, what will happen to equilibrium output and the price level? Finally, if both input and output prices are fully flflexible, what does the aggregate supply curve look like? In this case, if AD decreases, what will happen to equilibrium output and the price level? (Hint: If you are having trouble drawing these three aggregate supply curves, review the immediate-short-run aggregate supply curve and the short-run aggregate supply curve…
- Use the IS-LM model to describe the short-run effects of an increase in the money supply on the equlibrium output and real interest rate. Assuming the economy is in a long-run equilibrium before the shock, also explain how the price level changes over time, and what happens to the economy in the long-run. Use the AS-AD framework for this part of the question. Add diagrams to illustrate the answer - you can use the attachment feature of the answer editor to upload your chart.Use the IS-LM model to describe the short-run effects of a decrease in the money supply on the equilbrium output and real interest rate. Assuming the economy is in a long-run equilibrium before the shock, also explain how the price level changes over time, and what happens to the economy in the long run. Use the AS-AD framework for this part of the question. Add diagrams to illustrate the answer - you can use the attachment feature of the answer editor to upload your chart.Consider the AS-AD and three-equations models of a closed economy. 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? 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? 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.
- Coronavirus pandemic and resultant shutdown measures to contain it have plunged the economies around the world including Singapore into severe contraction. Assuming Singaporean economy was in long run equilibrium in the aggregate demand and supply (AD-AS) model before the pandemic (and consequent shutdown) started, answer the questions below: Now assume that the contraction in the Singaporean economy is mainly driven by supply side factors, Show the short-run effects of this using the AD-AS model.Coronavirus pandemic and resultant shutdown measures to contain it have plunged the economies around the world including Singapore into severe contraction. Assuming Singaporean economy was in long run equilibrium in the aggregate demand and supply (AD-AS) model before the pandemic (and consequent shutdown) started, answer the questions below: (do not explain what the lines in the graph mean. explain the effects of the respective demand/supply side factors) a. Assuming the contraction in the Singaporean economy is mainly driven by demand side factors, Show the short-run effects of this using the AD-AS model. Carefully explain in words (100 or less)(explain the demand side factors not what the lines in the graph are). b. Now assume that the contraction in the Singaporean economy is mainly driven by supply side factors, Show the short-run effects of this using the AD-AS model. Carefully explain in words (100 or less)(explain the supply side factors not what the lines in the graph are).…Use the IS-LM model to describe the short-run effects of a decrease in government expenditure on the equilbrium output and real interest rate. Assuming the economy is in a long-run equilibrium before the shock, also explain how the price level changes over time, and what happens to the economy in the long run. Use the AS-AD framework for this part of the question. Add diagrams to illustrate the answer - you can use the attachment feature of the answer editor to upload your chart.