Macroeconomics
4th Edition
ISBN: 9780393602487
Author: Jones, Charles I.
Publisher: W. W. Norton & Company
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Question
Chapter 9, Problem 6E
(a)
To determine
The effect of an incorrect interpretation and time lag in the analysis of potential output.
(b)
To determine
The effect of an incorrect interpretation of a rise in output on the level of inflation.
(c)
To determine
The effect of an incorrect interpretation of a fall in the growth rate of output.
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Students have asked these similar questions
(1) Suppose the economy is in long-run equilibrium. If there is a sharp increase in the expected price level, what do we expect to happen?
Select one:
(A) In the short run, the SRAS curve will shift left, real GDP and price will fall.
(B) In the short run, SRAS will shift right, real GDP will rise and prices will fall.
(C) In the short run, AD will shift left, real GDP and prices will fall.
(D) In the short run, LRAS and SRAS will shift left, causing real GDP to fall.
In the New Keynesian model, suppose that in the short run the central bank cannot observe aggregate output or the shocks that hit the economy. However, the central bank would like to come as close as possible to economic efficiency. That is, ideally the central bank would like the output gap to be zero. Suppose initially that the economy is in equilibrium with a zero-output gap.
(a) Suppose that there is a shift in money demand. That is, the quantity of money demanded increases for each interest rate and level of real income. How well does the central bank perform in relative to its goal? Explain using diagrams.
(b) Suppose that firms expect total factor productivity to increase in the future. Repeat part (a).
(c) Suppose that total factor productivity increases in the current period. Repeat part (a).
(d) Explain any differences in your results in parts (a)–(c) and explain what this implies about the wisdom of following an interest rate rule for the central bank.
Problem 6 assumes that…
An economy has an unemployment rate of 11% and real GDP grows by 2.5% annually. A treasury official says next year's expected growth rate of 4% is ecpected to bring down the enemployment rate to 8% within one year. However, an economists disagrees as it is non consistent with macroeconomic research.
-who is correct? the treasury official or the economist and why?
Knowledge Booster
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