MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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Question
Chapter 15, Problem 6DQ
To determine
To explain: The reason behind the time lags leading the economy lead to destabilization.
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Students have asked these similar questions
Which of the following does not cause the aggregate demand curve to shift to the right?
A) A tightening monetary policy.
B) An investment boom
C) An expansionary fiscal policy
D) An expansionary monetary policy
In one or two sentences, explain why Keynesian economists believe that increasing the money supply will be effective at increasing aggregate demand in the short run.
Suppose that government spending is increased at the same time when an autonomous monetary policy tightening occurs. What will happen to the position of the aggregate demand curve?
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- Using the AD-AS model, draw a graph and explain the effect of the implementation of a restrictive monetary policy on the equilibrium price level and the equilibrium level of output.arrow_forwardWhat effect will a successful supply-side policy have on the aggregate demand curve? A) Leftward shift B) Rightward shift C) Movement down along D) Movement up alongarrow_forwardExplain in detail how policy rate affects aggregate demand through a monetary transmission mechanism.arrow_forward
- In an effort to stabilize the economy, is it best for policymarkers to use monetary policy, fiscal policy, or a combination of both? The following questions address the ways monetary and fiscal policies impact the economy and the pros and cons associated with using these tools to ease economic fluctuations. The following graph shows a hypothetical aggregate demand curve (AD), short-run aggregate supply curve (AS), and long-run aggregate supply curve (LRAS) for the economy in May 2025. According to the graph, this economy is in (a recession/an expansion) . To bring the economy back to the natural level of output, the government could use (an expansionary/a contractionary) monetary or fiscal policy such as (decreasing taxes/increasing taxes). Shift the appropriate curve on the following graph to illustrate the effects of the policy you chose. Suppose that in May 2025, policymakers undertake the type of policy that is necessary to bring the economy back to the natural…arrow_forward“Policymakers would never respond by stabilizing output in response to a temporary positive supply shock.”Is this statement true, false, or uncertain? Explain youranswerarrow_forwardBriefly explain whether each of the following statements is true or false 3. In the AD-AS model, monetary policy can stabilize both the price level and real GDP following a shock to aggregate demand.arrow_forward
- According to mainstream economists, what is the usual cause of macroeconomic instability? What role does the spending-income multiplier play in creating instability? How might adverse aggregate supply factors cause instability, according to mainstream economists?arrow_forwardComplete the following table to compare the results of an unanticipated expansionary policy to those of an anticipated expansionary policy in the short run and long run. Determine whether, in the short run, the level of output increases, decreases, or remains unchanged relative to the potential output level when the expansionary policy is anticipated versus unanticipated. Additionally, determine whether, in the long run, the actual price level is above, below, or the same as initial expectations under both scenarios, and, again, determine whether the level of output increases, decreases, or remains unchanged. Anticipated Expansionary Policy Unanticipated Expansionary Policy Short-Run Change in Output Decrease/Increase* Decrease/Increase/No Change* Long-Run Change in Price Level Same as Initial expectation/Higher then initial expectations/ lower then initial expectations* (same options as box on the left) ** Long-Run Change in Output Decrease/Increase/No change*…arrow_forwardUse the AD/AS framework to explain the impact of stabilization policy to correct for a negative output gap in the short-run.arrow_forward
- How does the decision to reduce the policy rate impact the economy. Explain using the ISLM model focusing on impacts on the goods and services market and the financial market.arrow_forwardExplain what types of policies the federal government may have implemented to restore aggregate demand and the potential obstacles policymakers may have encountered.arrow_forwardIf the aggregate supply (AS) curve is very steep, will expansionary fiscal or monetary policy have a bigger effect on real GDP or the price level? Draw a graph to support your answer to this question.arrow_forward
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