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- Would you expect to see long-run data trace out a stable downward-sloping Phillips curve?When there is a shockto the economy and GDP declines, how much of the decline is due to a changein potential output and how much to a change in short-run output?Assume that two shocks happen simultaneously: a positive expenditure shock (let’s say a popular trend is to go for a bigger house) and a positive supply shock (let’s say prices on imported inputs decreased dramatically due to a substantial reduction in tariffs). Use AE/PC Model (carefully labeled!!) without time lags (use the AE and PC graphs similarly to the textbook, place PC graph below AE graph). For your analysis, choose as a starting point (marked A) an economy operating at potential GDP (Y=Y*) and at its inflation target (? = ?#). Also, show point B where the economy is situated after the shocks but prior to any central bank policy response. There should be A and B on BOTH the upper (AE graph) and lower (PC graph) graphs. If points A and B are the same point, then just mark that point with both A and B. Mark initial curves with the superscript 1, like AE1 and PC1, and every subsequent shift with a higher number, like the second shift would be AE2 and PC2, and the third shift (if…
- Please no written by hand solution Consider the following economic situations:C = $4.0 trillionI = $1.5 trillionG = $3.0 trillionT = $3.0 trillionNX = $1.0 trillionF = 0mpc = 0.8d = 0.35x = 0.15r = 1% λ = 0.5A. Calculate an expression for the IS, MP and AD curves ( r= ?, IS Y= ?, AD Y=?)B. Let AS curve be given by the relation: π = 6 + 1.5 (Y - 25.5) (i.e. the price shock is zero). What are the equilibrium values of inflation, output and the real interest rate(π, Y, r)?C. Suppose government purchases are raised from $3.0 trillion to $3.5 trillion. What are new short-run equilibrium inflation values, output and the real interest rate (π, Y, r}?D. Suppose a financial crisis begins, and ƒ increases ƒ = 3. (Assume government purchases are again as in part (a). What are the new short-run equilibrium values of inflation, output, and the interest rate (π, Y, r}?(Please solve all the parts with numerical steps so it could be practiced easily)Illustrate and interpretthe short-run and longrun effects of temporary and permanentsupply shocksWhat, precisely, are the two shocks? (For the purpose of this question,let’s ignore the signifcant role played by the fnancial crisis itself.)
- Explain how each ofthe following shocks can impact the demand orsupply of oil:A. A worldwide economic recession.B. Improved oildrilling technology.C. War in a majoroil producing country.D. Greaterenvironmentalawareness about climate change.Specific subject - Macroeconomic Analyse the case of a negative supply shock caused by an increase in oil prices and compare with the shock caused by the Covid pandemic. What would be the similarities and differences between the two shocks? What would be the effect of an expansionary economic policy (increase in aggregate demand)? Graph What measures or government intervention would be most appropriate to deal with both types of shocks? Graph Compare the adjustment in both cases with and without government intervention. GraphHow does a credible nominal anchor help improve theeconomic outcomes that result from a positive aggregatedemand shock? How does a credible nominal anchorhelp if a negative aggregate supply shock occurs? Usegraphs of aggregate supply and demand to demonstrate.
- Using the ASAD graph and starting in long run equilibrium YA = Y* (see the model example in the textbook Figure 13.11) take each of following shocks one by one in separate graphs and decide if the event falls into the real shock (LRAS) category or aggregate demand (AD) shock category. Then graph each. Remember that “shocks” include both good and bad events and the graph should show that in the short run the economy is either that YA < Y* or YA > Y* A fall in the input price of oil A rise in consumer optimism A cut in business taxes if they buy new equipment Foreigners buy fewer US made goods. Consumer Fear New inventions (A) occur at a faster pace than usual A faster money growth rate A permanent cut in income taxesTRUE/FALSE. Brietly explain your answer. a) The real business cycle model is very helptul because we can always identity the sources of total factor productivity shocks. b) An increase in financial market frictions can cause the natural rate of interest to increaseHi, could you help me solve this problem? It is often argued that the effect of a demand shock depends on the state of the economy. In particular, a given increase in aggregate demand may induce a larger increase in inflation (or price level) if the output gap is initially positive (output exceeds natural output) than if the output gap is initially negative. The argument is that when economy’s overall production capacity is almost fully used, firms cannot expand output much in response to an increase in demand.t Draw AD and AS curves that are consistent with these ideas and explain them briefly.
