Exploring Macroeconomics
8th Edition
ISBN: 9781544363332
Author: Robert L. Sexton
Publisher: Sage Publications
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Question
Chapter 14, Problem 7P
To determine
(a)
To illustrate:
The inflationary gap on the provideddiagram.
To determine
(b)
To explain:
The final long-run equilibrium with the help of a diagram.
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Check out a sample textbook solutionStudents have asked these similar questions
Assume an economy is initially operating at the natural rate of output.
a. Draw an AD-AS model. Label the initial equilibrium point as point A. Use the model to illustrate graphically the short-run effects on price and output
when the world oil price suddenly increases. Label the new equilibrium as point B.
b. What happens to inflation and unemployment in the short run?
c. Label in your diagram the long-run equilibrium point if the economy recovers on its own. Name it Point C.
d. What monetary policy should the Fed use to help the economy recover in the short run? Label the equilibrium point in your diagram if the Fed took
the proposed action. Name it Point D.
Are there any “good” supply shocks? Explain
A central bank forecasts a rise in raw material costs. The government plans to increase spending
on health and education.
The initial equilibrium point is shown by X on the aggregate demand, AD, and aggregate supply,
AS, diagram.
What would be the new equilibrium point in the short run if the forecasts prove to be accurate and
the government plans are implemented?
AS,
AS2
general
price
level
AS
B
A
AD, AD AD,
real output
C.
Chapter 14 Solutions
Exploring Macroeconomics
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