Macroeconomics (9th Edition)
9th Edition
ISBN: 9780134167398
Author: Andrew B. Abel, Ben Bernanke, Dean Croushore
Publisher: PEARSON
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Question
Chapter 10, Problem 4NP
a)
To determine
The equilibrium values of output and the
b)
To determine
The equilibrium values of output and the price level using the AS-AD curve after the unanticipated increase in money supply.
c)
To determine
The equilibrium values of output and the price level using the AS-AD curve, after the increase in money supply as announced by F.
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Suppose that in 2011, the price of cotton, an input good, decreases in Microtania. Show how this event will change equilibrium output and price level by shifting either the SRAS or AD curve, and then answer the questions below.
Did equilibrium output increase or decrease?Increase/Decrease
Did equilibrium price increase or decrease?Increase/Decrease
Q.1.17 A decrease in the price level will: (a) shift the AS curve to the left.(b) shift the AD curve to the left.(c) shift the AS curve to the right.(d) leave both the AD curve and the AS curve unchanged.
Consider the graphical representation of the Keynesian cross for a hypothetical country, where the planned aggregate spending line is graphed against the 45° line. Suppose that, in this country, there is an autonomous increase in aggregate spending of $20 billion. Show this change on the graph.
Chapter 10 Solutions
Macroeconomics (9th Edition)
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- According to the AS-AD model, which of the following is true about output when there is an increase in the AD and no other change? (Select all that are true) There is a decrease in output in the short run There is an increase in output in the long run There is an increase in output in the short run There is no change in output in the long run There is no change in output in the short run There is a decrease in output in the long runarrow_forwardA decrease in the price level will:(a) shift the AS curve to the left.(b) shift the AD curve to the left.(c) shift the AS curve to the right.(d) leave both the AD curve and the AS curve unchanged.arrow_forwardKeynesian economics predicts that if government policy makers deem current equilibrium real Gross Domestic Product (GDP) to be "too low," then an appropriate policy action would be to do nothing, because the economy is self-adjusting. raise government spending, thereby increasing aggregate demand and pushing up real Gross Domestic Product (GDP) with little or no inflationary consequences. increase taxes, thereby causing aggregate demand to increase and inducing a rise in real Gross Domestic Product (GDP) with little or no inflationary consequences. reduce the money stock, thereby causing aggregate demand to decrease and inducing a rise in fall in the price level that generates an increase in total planned expenditures.arrow_forward
- The Keynesian view of the AD/AS model states that when beginning from potential output equilibrium, any decrease in AD will : Group of answer choices a Decrease real output and decrease prices b Decrease real output and increase prices c Decrease real output and do not affect prices d Increase real output and decrease pricesarrow_forwardIf the AD curve is given by , and segment 2 of the AS curve is , what is the equilibrium price level? Remember to answer up to two decimal places. _____arrow_forwardAssuming that there is no government spending or trade, an economy’s GDP is the sum of domestic consumption C and investment I, i.e. Y = C+ I Assume that I is unaffected by GDP Assume the consumption function is C = c0 + c1Y In any equilibrium aggregate demand, AD must be equal to Y, GDP. Given this model, which FIVE of the following statements are correct? Select one or more: A. If the economy above is a demand-driven economy, then the equilibrium solution for Y is given by Y = m(c0 + I), where m = 1/(1 - c1) is the multiplier. B. if c1 = 0.8 the multiplier is equal to 1/0.8= 1.25 C. if c1 = 0.75 the multiplier is equal to 4 D. assume c0 =100, I=50, c1=0.6. The equilibrium value of Y in a demand-driven economy is 300. E. Assume that Y is initially 400, I is initially 100, and the multiplier is 2.5. I increases by 10%. The multiplier implies that in equilibrium Y will increase by 25%. F. The higher is c1 the larger is the multiplier G. If consumers…arrow_forward
- Depict in the AD-AS model, an economy exhibiting a short run equilibrium with a negative output gap resulting from a decline in AD caused by falling investment spending. What is true about the level of unemployment in this circumstance? What is true about the utilization of capital in this circumstance? What are the implications of your statements in parts a and b for long run adjustments in resource prices? How will these changes in resource prices impact the economy in the long run? Depict this change in your graph.arrow_forwardTwo identical countries, Country A and Country B, can each be described by a Keynesian-cross model. The MPC is 0.6 in each country. Country A decides to increase government spending by $2 billion, while Country B decides to cut taxes by $2 billion. In which country will the new equilibrium level of income be greater? Show all computations.arrow_forwardOur model takes the price level � as given in the short run, but in reality, the currency appreciation caused by a permanent fiscal expansion might cause � (CPI level) to fall a bit by lowering some import prices. If � can fall slightly as a result of a permanent fiscal expansion, is it still true that there are no output effects in the short run?arrow_forward
- The Keynesian view of the AD/AS model states that when beginning from potential output equilibrium, any increase in AD will :arrow_forwardi need this in word not handwritten Q9. For each of the following sets of data, determine if output will need to increase, decrease, or remain the same to move the economy to equilibrium: Y=1,000;C=100+0.75(Y-T);I=200;G=150;T=100 ________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 2. Y=5,000;C=200+0.9(Y-T);I=500;G=400;T=300arrow_forwardSuppose firms are optimistic about the outlook of the economy and they decide to increase investment. Also suppose that, simultaneously, there is a reduction in business taxes. Use the AD-AS graph to show what happens to the price level and output as a result.arrow_forward
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