4. Problems and Applications Q4 Suppose the economy is in a long-run equilibrium, as shown on the following graph. Now suppose a fall in government purchases reduces aggregate demand. On the following graph, shift a curve or adjust the point to reflect the short-run effect of reduction in government purchases. Inflation Rate O True LRPC O False Unemployment Rato SRPC SRPC O Short-Run Effect LRPC True or False: If the Fed undertakes expansionary monetary policy, it can return the economy to its original inflation rate and original unemployment rate. (?)

4. Problems and Applications Q4 Suppose the economy is in a long-run equilibrium, as shown on the following graph. Now suppose a fall in government purchases reduces aggregate demand. On the following graph, shift a curve or adjust the point to reflect the short-run effect of reduction in government purchases. Inflation Rate O True LRPC O False Unemployment Rato SRPC SRPC O Short-Run Effect LRPC True or False: If the Fed undertakes expansionary monetary policy, it can return the economy to its original inflation rate and original unemployment rate. (?)

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 5PA

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To https://aplia.apps.ng.cengage.com/ar/serviet/quiz?cx=bkhana-0031&quiz_action=takeQuiz&quiz_probGuid=... The following graph shows a decrease in short-run aggregate supply (AS) in a hypothetical economy where the currency is the dollar. Specifically, the short-run aggregate supply curve shifts to the left from AS₁ to AS2, causing the quantity of output supplied at a price level of 100 to fall from $200 billion to $150 billion. ? 200 AS 175 AS₁ 150 125 100 75 50 25 0 PRICE LEVEL 0 50 300 200 250 QUANTITY OF OUTPUT 100 150 350 400 Yo
Considering how monetary policy affects the market, which of the following statements is most accurate? There is an indirect impact on aggregate demand by monetary policies. O There is more of an impact on consumption than investments by monetary policies. There is a direct impact on aggregate demand by monetary policies.
Suppose the economy begins at full employment. Label this starting point as point "1." Then, suppose that the minimum wage increases to $15 in the United States, which affects the entire labor market and increases the cost of production. Show the effects on your graph and label the new equilibrium point "2." Lastly, suppose the Federal Reserve wants to keep prices in the economy as low as possible. Should the Fed intervene? If so, show the impact of successful monetary policy on your graph. Label this new equilibrium point "3."
In the figure at right, assume the economy starts out in equilibrium at point d. If the Fed increases the money supply so that the new aggregate demand curve is AD3, then the new short-run equilibrium will be at point A. i. O B. c. C. b. D. a. Price Level 130 120 100 e b LRAS 9 с SRAS₁ SRAS₂ AD₁ Real GDP per Year ($ trillions) SRAS3 AD3 AD₂
Consider the AD-AS model in the following picture. If the original level of aggregate demand is Ef, what will be the effect of an expansionary monetary policy that shifts aggregate demand from ADf to ADI? Price Pf Pr Fig11a Er C. Yr Real GDP LRAS ADr Ef I don't know. SRAS Ei ADf Yf Yi a. stagflation b. inflation and unemployment ADi d. inflation, but little employment
A country's central bank is engaging in monetary contraction, with M going from M0=40 to M1=20. Its economy is as follows. Goods: slc = 3 MPC = 0.7 G = 10 T = 9 Before the policy, the goods market equilibrium is at Y0 = 54. Financial: I = 18-200r Before the policy, the loans market equilibrium is at r = 4.25% and I = 9.5 Money: M0 = 40 P0 = 2 M/P = 0.02 / (r - Y/5000)^2 and finally, Labor: w = MPL = 0.5 * 4.5 * 16^0.6 / L^0.5 w = EP / P0 * L^0.5 Where workers currently expect the price level of EP=2. There are four endogenous variables that adjust in response to shock/policy: Y, I, r, P. The policy variable of interest is M. Therefore, let's approach our solution by first recognizing that all other letters are just constants and plug them in. For example: Y = 2 + 0.5(Y-6)+7+I becomes Y = 12 + 2*I First, express the goods market as expenditure being a linear function of investment I of the form: Y = a + b*I where a and b are parameters (numbers). 1. How does the monetary…
A country's central bank is engaging in monetary contraction, with M going from M0=40 to M1=20. Its economy is as follows. Goods: slc = 3 MPC = 0.7 G = 10 T = 9 Before the policy, the goods market equilibrium is at Y0 = 54. Financial: I = 18-200r Before the policy, the loans market equilibrium is at r = 4.25% and I = 9.5 Money: M0 = 40 P0 = 2 M/P = 0.02 / (r - Y/5000)^2 and finally, Labor: w = MPL = 0.5 * 4.5 * 16^0.5 / L^0.5 w = EP / P0 * L^0.5 Where workers currently expect the price level of EP=2. How does the monetary contraction directly and immediately affect the goods market? There are four endogenous variables that adjust in response to shock/policy: Y, I, r, P. The policy variable of interest is M. Therefore, let's approach our solution by first recognizing that all other letters are just constants and plug them in. For example: Y = 2 + 0.5(Y-6)+7+I becomes Y = 12 + 2*I First, express the goods market as expenditure being a linear function of investment I of the form: Y = a…
A country's central bank is engaging in monetary contraction, with M going from M0=40 to M1=20. Its economy is as follows. Goods: slc = 3 MPC = 0.7 G = 10 T = 9 Before the policy, the goods market equilibrium is at Y0 = 54. Financial: I = 18-200r Before the policy, the loans market equilibrium is at r = 4.25% and I = 9.5 Money: M0 = 40 P0 = 2 M/P = 0.02 / (r - Y/5000)^2 and finally, Labor: w = MPL = 0.5 * 4.5 * 16^0.6 / L^0.5 w = EP / P0 * L^0.5 Where workers currently expect the price level of EP=2. - There are four endogenous variables that adjust in response to shock/policy: Y, I, r, P. The policy variable of interest is M. Therefore, let's approach our solution by first recognizing that all other letters are just constants and plug them in. For example: Y = 2 + 0.5(Y-6)+7+I becomes Y = 12 + 2*I First, express the goods market as expenditure being a linear function of investment I of the form: Y = a + b*I 1. How does the monetary contraction directly and immediately affect the…
ון רבSuip Reset the graph and click on the blue square to apply a negative supply shock the the economy. Then adjust the movable point to view the effects of potential policy responses to the negative supply shock. Use what you observe to answer the questions that follow. a. In response to the effects of a negative supply shock, policymakers decide to decrease aggregate demand. What are the effects of this choice? O an increase in aggregate output, and an increase in the aggregate price level an decrease in aggregate output, and an decrease in the aggregate price level an increase in aggregate output, and an decrease in the aggregate price level an decrease in aggregate output, and an increase in the aggregate price level b. What are the overall tradeoffs with regard to this choice? Policymakers have chosen to fight inflation by increasing AD, but this further reduces aggregate output and makes the recession worse. Policymakers have chosen to fight inflation by decreasing AD, but this…
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Throughout much of the current year 2020, Canada has been experiencing declining energy prices. Assume that the Canadian economy was in long-run equilibrium before these declines began. 1.Use the aggregate demand–aggregate supply model to illustrategraphically the short-run and long-run impact of this decline on output and prices. 2. If the Bank of Canada attempted to offset this deviation from the naturalrate in the short run, should the money supply be increased or decreased?