Economics For Today
Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
Question
Chapter 20.A, Problem 16SQ
To determine

The full-employment level of GDP.

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All else equal, a decline in price of inputs across the economy — such as labor — causes 6) A) Rightward shift of aggregate demand [AD] and a higher real GDP [Y] B) Leftward shift of aggregate supply [AS] and a lower Y C) Rightward shift of AS and a higher Y D) Leftward shift of AD and deflation
Consider a closed economy, where wages are sticky in the short run. The consumption function isC = c0 + c1(Y − T ), where the marginal propensity to consume c1 is equal to 0.75. Initially the economy is in equilibrium at Y = Y* and P = P e, where P e is the price level that was expected when agents agreed their fixed nominal wage contracts. The short-run aggregate supply curve (SRAS) is horizontal. Suddenly the government increases government spending G by $500.   1. By how much will output Y change (compared to its initial level before the change in G) in the long run, after wage contracts are renegotiated? 2. By how much will consumption C change (compared to its initial level before the change in G) in the long run, after wage contracts are renegotiated? 3. By how much will investment I change (compared to its initial level before the change in G) in the long run, after wage contracts are renegotiated?
Explain the short-run and long-run impact of the Safrican government’s policy decision to reduce their subsidies to universities looking to train foreign nurses and doctors in Safrica. Explain your answers specifically with one sentence with respect to each of the following: 1. the impact on unemployment, 2. the impact on inflation, 3. the impact on real GDP 4. the impact on the Aggregate Demand function. Assume the economy is currently operating at its long run equilibrium.
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  • Aggregate demand and aggregate supply, based on a problem from “Principles of Economics” by N. Gregory Mankiw a) List the components of country’s GDP in an open economy. For each component, provide an example of an event that would cause a shift of the aggregate demand curve to the right.b) What will be the effect of such events on the level of prices and the real outcome in the short run? Provide a graph.c) What will be the effect of such events on the level of prices and the real outcome in the longrun? Update your graph
    Start at full-employment (FE) equilibrium with flexible wages and worker misperception of price level changes in the short run. Suppose then that we have an increase in Aggregate Demand. First, think about the short-run effects on price level (P), output level (Q), wage level (W), employment (L), and unemployment (U)?             In the long run, once workers realize that there was a change in the price level, they will change the supply curve of labor. When all subsequent wage and price adjustments take place, we will be in a new long-run equilibrium. From the original full-employment (FE) equilibrium to the final one, what is the net change in the price level (P), output level (Q), the nominal wage (W), employment (L), unemployment rate (U), and the real wage (W/P)?   Group of answer choices a) An increase in P, no change in Q, no change in W, an increase in L, an increase in U and no change in W/P. b) An increase in P, a decrease in Q, a decrease in W, a decrease in L, an…
    Price level ​(GDP price​index) Real GDP demanded Real GDP supplied ​(trillions of 2005​ yen) 75 600 400 105 450 550 135 300 700 The​ short-run macroeconomic equilibrium real GDP is ¥------ trillion and the equilibrium price level is ------.     The size of the (recessionary , or inflamatory)   gap is ¥-------- trillion.
  • Consider the following economy: Labor supply: Nt= 90 Capital stock: Kt = 90 Government spending: Gt = 20 Tax collections: Tt = 20 Production function: Yt = 2(Kt)0.5 (Nt)0.5 Real money demand Lt = 2Yt - 200rt Consumption function: Ct = 16 + 0.8(Yd)t Domestic price level: Pt = 4 Investment function: It = 25 - 50rt Nominal money supply: Mt = 1296   QUESTIONS:  Find an expression for the IS curve.  Find an expression for the LM curve.  Find an expression for the aggregate demand curve.  What are the short run equilibrium values for output, interest rate and price level?  Plot (a)-(d) on the IS-LM and AD-SRAS-LRAS diagrams. Make sure to label (i) the axes, (ii) the curves and (iii) the initial equilibrium levels. Is this a short-run level of output also a long-run equilibrium? Explain. Suppose that the government the Fed increases money supply to Ms=1620. Find the new short-run equilibrium levels of output and interest rate Find the long-run equilibrium levels of output, interest rates and…
    Consider the following economy: Labor supply: Nt= 90 Capital stock: Kt = 90 Government spending: Gt = 20 Tax collections: Tt = 20 Production function: Yt = 2(Kt)0.5 (Nt)0.5 Real money demand Lt = 2Yt - 200rt Consumption function: Ct = 16 + 0.8(Yd)t Domestic price level: Pt = 4 Investment function: It = 25 - 50rt Nominal money supply: Mt = 1296   QUESTIONS: Find an expression for the IS curve.  Find an expression for the LM curve.  Find an expression for the aggregate demand curve. What are the short run equilibrium values for output, interest rate and price level?  Plot (a)-(d) on the IS-LM and AD-SRAS-LRAS diagrams. Make sure to label (i) the axes, (ii) the curves and (iii) the initial equilibrium levels.  Is this a short-run level of output also a long-run equilibrium? Explain.  Suppose that the government the Fed increases money supply to Ms=1620. Find the new short-run equilibrium levels of output and interest rate  Find the long-run equilibrium levels of output, interest rates…
    Supply shocks and demand management Assume that the economy starts at a natural level if output. now suppose thee is an increase in the price of oil. a)  In a AS-AD diagram show what happens to output and the price level in the short run and the medium run b) what happens to the unemployment rate in the short run? in the medium run?
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