Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 9, Problem 14QP
To determine
Explain the price level of long-run equilibrium and short-run equilibrium.
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Suppose that the government believes the economy is not producing goods and services at its optimal level. In an attempt to stimulate the economy, the government increases the quantity of money in the economy by printing more money.
This monetary policy the economy's demand for goods and services, leading to product prices. In the short run, the change in prices induces firms to produce goods and services. This, in turn, leads to a level of unemployment.
In other words, the economy faces a trade-off between inflation and unemployment: Higher inflation leads to unemployment.
Suppose a country's potential level of output is $90 billion. A decrease in total spending causes aggregate demand to decrease, and output is now $75 billion. What is the country's level of output in the short run? (Answer in billions.) $______
The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $600 billion. Suppose the government increases spending on building and repairing highways, bridges, and ports.
Chapter 9 Solutions
Macroeconomics
Ch. 9.1 - Prob. 1STCh. 9.1 - Prob. 2STCh. 9.1 - Prob. 3STCh. 9.2 - Prob. 1STCh. 9.2 - Prob. 2STCh. 9.2 - Prob. 3STCh. 9.3 - Prob. 1STCh. 9.3 - Prob. 2STCh. 9.3 - Prob. 3STCh. 9 - Prob. 1QP
Ch. 9 - Prob. 2QPCh. 9 - Prob. 3QPCh. 9 - Prob. 4QPCh. 9 - Prob. 5QPCh. 9 - Prob. 6QPCh. 9 - Prob. 7QPCh. 9 - Prob. 8QPCh. 9 - Prob. 9QPCh. 9 - Prob. 10QPCh. 9 - Prob. 11QPCh. 9 - Prob. 12QPCh. 9 - Prob. 13QPCh. 9 - Prob. 14QPCh. 9 - Prob. 15QPCh. 9 - Prob. 16QPCh. 9 - Prob. 17QPCh. 9 - Prob. 18QPCh. 9 - Prob. 1WNGCh. 9 - Prob. 2WNGCh. 9 - Prob. 3WNGCh. 9 - Prob. 4WNGCh. 9 - Prob. 5WNGCh. 9 - Prob. 6WNGCh. 9 - Prob. 7WNG
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- Suppose the economy of a hypothetical country has reached its long-run macroeconomic equilibrium when each of the following aggregate demand shocks occurs. The economy of a hypothetical country has been stable for two or three years with very low unemployment. Wages have been gradually increasing during this time. Now stock market prices begin significant increases, causing peoples’ investments, such as their retirement accounts and other investments, to increase in value. People feel very good about the future and use their new-found wealth to buy things that they had been hesitant to purchase in the past. Describe, in a short essay inserted below these questions, how the economic situation will change and how the government could best respond to these changes. Include detailed answers to the following questions in your essay: What kind of economic gap will start to occur (inflationary or recessionary)? What kind of fiscal policy might be helpful to stabilize the economy…arrow_forwardSuppose an economy is at the short run equilibrium which its current output level called Y1, is below the full employment output level called Yf. If the government does nothing, discuss how the economy restores its long run equilibrium level of output?arrow_forwardSuppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in taxes, then in the short run, real GDP will a. rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected. b. fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be unaffected. c. rise and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower. d. fall and the price level might rise, fall, or stay the same. In the long run, the price level might rise, fall, or stay the same but real GDP will be lower.arrow_forward
- Now consider an economy in which the government lowers its spending. In the long run, the result would be _____________ in the price level and _____________ in real output. an increase; an increase a decrease; no change a decrease; a decrease None of the listed options is correct. no change; a decreasearrow_forwardThe United Kingdom’s economy is in short-run equilibrium with an output level at less than full employment. Using a correctly labeled aggregate demand and aggregate supply graph, show the following: Full employment output, labeled as Yf Equilibrium real output and price level, labeled as YE and PLE Assume that the UK government decreases domestic military expenditures. On the graph from question 1, show how the decreased military expenditures affect the following in the short run: Aggregate Demand Equilibrium real output and price level, labeled as Y2 and PL2. Is the UK government making a good decision in question 2? Why or why not? Explain using your good economic thinking skills!arrow_forward
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