Which of the following is false in the dynamic AS-AD model? An increase in the natural level of output has no effect on the long-run inflation rate. To control inflation, the central bank should increase the nominal interest rate more than one to one in response to an increase in the inflation rate. The monetary policy rule determines the slope of the dynamic AD curve. The output equation relates real output negatively to nominal interest rates.

Which of the following is false in the dynamic AS-AD model? An increase in the natural level of output has no effect on the long-run inflation rate. To control inflation, the central bank should increase the nominal interest rate more than one to one in response to an increase in the inflation rate. The monetary policy rule determines the slope of the dynamic AD curve. The output equation relates real output negatively to nominal interest rates.

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter26: Monetary Policy

Section26.A: Policy Disputes Using The Self Correcting Aggregate Demand And Supply Model

Problem 7SQ

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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.
Consider the AS-AD model. Which of the following is false if there is an increase in the natural level of output? The AD curve shifts to the right The AS curve shifts to the right Interest rate decreases in the medium run Output increases in the medium run Inflation increases in the medium run Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
True/False with explanation In the dynamic AS-AD model, a perfectly inelastic aggregate supply curve means the central bank cannot control the rate of output growth or the inflation rate. There are an infinite number of combinations of real interest rates and inflation rates consistent with a nominal interest rate of zero.
Consider a standard AD-AS model. The economy is affected by the following sequence of events. In period 1 there is a shock to the economy that is temporary. In period 2, the shock ends. But having observed an inflation outcome different to the inflation target, inflation expectations change from the inflation target to a value exactly equal to the observed inflation in period 1 (that is, expectations are not `anchored’). A temporary positive demand shock would lead to output above potential in period 1, but below potential in period 2. Answer true or false. Please briefly explain your answer.
The AD/AS model is static. It shows a snapshot of the economy at a given point in time. Both economic growth and inflation are dynamic phenomena. Suppose economic growth is 3% per year and aggregate demand is growing at the same rate. What does the AD/AS model say the inflation rate should be?
Japan is experiencing Inflation due to excess demand. Draw a correctly labled AS/AD model representing where the economy is relative to the Natural Rate of Unemployment
Consider the AD/AS model with a constant inflation rate. It is possible that the money supply is rising while interest rates are unchanged because... a. Declining interest rates cause the investment demand curve to shift to the left, which causes interest rates to rise back to their original level. b. The rising price level increases money demand, offsetting the impact of the rising money supply. c. The rising price level decreases money demand which pushes up interest rates. d. Declining interest rates cause the investment demand curve to shift to the right, which causes interest rates to rise back to their original leve. e. The money transmission mechanism does not apply in a situation of sustained inflation.
According to the Keynesian model, demand shocks affect output in the short run because: nominal wages are sticky. employment can be adjusted quickly. real wages do not change as inflation changes. None of the above.
True/False with explanation In the dynamic AS-AD model, a perfectly inelastic aggregate supply curve means the central bank cannot control the rate of output growth or the inflation rate.
Apply the simple Keynesian model to discuss how feedback loops may affect the response of national output to aggregate demand shocks.
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.
What is the reason behind why the SRAS curve is upward sloping? There are few unutilised resources Higher price level means higher nominal wages Higher price level means higher real wages Lower price level will increase profit Nominal wages and input costs are sticky in the short run