Shift the AD curve on the previous diagram to show the effects of an increase in the money supply.Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps backto its original position, just drag it a little farther.Based on the new price level, the new money supply must be $Becausemoney supply. This illustrates thetrillion in the long run if the velocity of money remains at 2., the percentage increase in the price level isthe percentage increase in the 4. The equation of exchangeThe equation of exchange is given by M x V = P x Y, where M is the money supply, V is the velocity of money, P is the economy's price level,and Y is real GDP.Suppose the following diagram shows the current aggregate demand (AD) and aggregate supply (AS) curves in a hypothetical economy.PRICE LEVEL1815123003AS6912REAL GDP (Trillions of dollars)Nominal GDP in this economy istrillion.AD1518If the velocity of money is 2, the money supply in this economy isADAS

The combined impact of aggregate demand and supply, coupled with the quantity theory of money, molds…

4. The equation of exchange The equation of exchange is given by M x V = PxY, where M is the money supply, V is the velocity of money, P is the economy's price level, and Y is real GDP. Suppose the following diagram shows the current aggregate demand (AD) and aggregate supply (AS) curves in a hypothetical economy. PRICE LEVEL 18 15 3 0 3 AS 6 9 12 REAL GDP (Trillions of dollars) Nominal GDP in this economy is $ trillion. AD 15 18 If the velocity of money is 2, the money supply in this economy is AD þ AS

4. The equation of exchange The equation of exchange is given by M x V = PxY, where M is the money supply, V is the velocity of money, P is the economy's price level, and Y is real GDP. Suppose the following diagram shows the current aggregate demand (AD) and aggregate supply (AS) curves in a hypothetical economy. PRICE LEVEL 18 15 3 0 3 AS 6 9 12 REAL GDP (Trillions of dollars) Nominal GDP in this economy is $ trillion. AD 15 18 If the velocity of money is 2, the money supply in this economy is AD þ AS

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter26: Monetary Policy

Section: Chapter Questions

Problem 3P

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2. Why does the aggregate demand curve slope downward? The following graph shows the aggregate demand curve in a hypothetical economy. Assume that the economy's money supply remains fixed. PRICE LEVEL 160 150 140 130 120 110 100 90 80 Aggregate Demand Aggregate Demand 0 100 200 300 400 500 600 700 800 REAL GDP (Billions of dollars) Which of the following are reasons the aggregate demand curve is downward sloping? Check all that apply. A lower price level makes domestically produced goods less expensive than foreign goods. A higher price level decreases the real value of consumers' assets. A lower price level increases consumption through the income effect. As the aggregate price level rises, the cost of borrowing money will the quantity of output demanded to effect. causing This phenomenon is known as the
The following graph shows several aggregate demand and aggregate supply curves for an economy whose potential output is $4 trillion. The curves are labelled a, b, c, and d. Three points on the graph are also indicated by grey stars and labelled X, Y, and Z. PRICE LEVEL 160 150 140 130 120 110 100 90 80 0 с 1 d a 2 3 5 REAL GDP (Trillions of dollars) 6 7 b ? Identify which curve on the previous graph corresponds to each description in the following table. If the curve described does not appear on the graph, choose Not Shown.
The following graph shows the aggregate demand curve in a hypothetical economy. Assume that the economy's money supply remains fixed. PRICE LEVEL (CPI) 180 T 150 140 130 120 110 100 90 80 0 Aggregate Demand 100 200 300 400 500 600 REAL GDP (Billions of dollars) 700 800 (?) Which of the following are reasons the aggregate demand curve is downward sloping? Check all that apply. A higher price level makes domestically produced goods more expensive than foreign goods. A lower price level leads to a lower interest rate. A higher price level decreases consumption through the substitution effect. As the aggregate price level rises, the purchasing power of households' saving balances will demanded to This phenomenon is known as the effect. causing the quantity of output
The following graph shows the aggregate demand curve in a hypothetical economy. Assume that the economy's money supply remains fixed. PRICE LEVEL (CPI) 160 150 140 130 120 110 100 90 80 0 Aggregate Demand 100 200 300 400 500 REAL GDP (Billions of dollars) 600 700 800 ? Which of the following are reasons the aggregate demand curve is downward sloping? Check all that apply. A higher price level makes domestically produced goods more expensive than foreign goods. A lower price level leads to a lower interest rate. A lower price level increases the consumption of complementary goods. As the aggregate price level rises, the purchasing power of households' saving balances will demanded to This phenomenon is known as the effect. , causing the quantity of output
17. Suppose that the Cuban economy is a closed one (ie X = M = 0). In 2016, the US government relaxed travel and trade restrictions with Cuba, allowing Cuba to trade with the US. Cuba starts importing consumption goods and exporting domestic produce to the US but it incurs a trade deficit as it is not as competitive as the US economy. As such, the and its slope become Cuban economy's AE line _ A. does not shift; steeper shifts up; flatter C. shifts down; flatter shifts up; steeper E. none of the above
4. What do we mean when we talk about the export base of a region? How does an increase in the export base affect total employment? How does this relate to the multiplier? What factors limit the size of the multiplier within cities?
c. Given the original $20 billion level of exports, what would be net exports and the equilibrium GDP if imports were $10 billion greater at each level of GDP? Fill in the gray-shaded cells. Instructions: Enter your answers as a whole number. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers (1) Real Domestic Output (GDP-DI), Billions $250 300 350 400 450 500 550 600 (2) Aggregate Expenditures, Private Closed Economy, Billions $290 330 370 410 450 490 530 570 billion Net exports = $ Equilibrium GDP=$ d. What is the multiplier in this example? (3) Exports, Billions billion $20 2222222 20 20 20 20 20 20 20 (4) Imports, Billions $40 40 40 40 40 40 40 40 (5) Net Exports, Billions (6) Aggregate Expenditures, Open Economy, Billions
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 ASi to AS2, causing the quantity of output supplied at a price level of 100 to fall from $200 billion to $150 billion. (? 200 AS2 175 150 125 100 75 50 25 50 100 150 200 250 300 350 400 QUANTITY OF OUTPUT PRICE LEVEL
The following graph shows an increase 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 right from AS, to AS₂, causing the quantity of output supplied at a price level of 100 to rise from $200 billion to $250 billion. PRICE LEVEL 200 175 150 125 100 75 50 25 0 0 50 AS, AS 100 150 200 250 300 350 400 QUANTITY OF OUTPUT The following table lists several determinants of short-run aggregate supply. Regulations on the firm Human capital Inflation expectations Complete the table by selecting the changes in each scenario necessary to increase short-run aggregate supply. Change Necessary to Increase AS
In early 2017, policymakers at the Federal Reserve forecast that real GDP during 2017 would increase faster than potential GDP and that the inflation rate for the year would be about 1.9 percent. Source: Federal Open Market Committee, "Advance Release of Table 1 of the Summary of Economic Projections to be Released with the FOMC Minutes," March15, 2017. Fill in the missing values in the table with estimates that are consistent with these forecasts. Assume that the growth rate for real GDP between 2016 and 2017 is 0.32 percentage points higher than the percentage change in potential output between those years (rounded to two decimal places). 2016 2017 Real GDP $16.7 trillion $nothing trillion Potential GDP $16.9 trillion $17.1 trillion GDP Deflator 111.5 nothing (Enter your responses rounded to one decimal place.)
The following graph shows several aggregate demand and aggregate supply curves for an economy whose potential output is $4 trillion. The curves are labeled a, b, c, and d. Three points on the graph are also indicated by grey stars and labeled X, Y, and Z. PRICE LEVEL AD 160 150 140 130 120 LRAS 110 B 100 90 80 0 Description с 1 d X 2 3 6 4 5 REAL GDP (Trillions of dollars) SRAS if the expected price level is 120 Identify which curve on the previous graph corresponds to each of the following descriptions. If the curve described is not shown on the graph, choose Not Shown. In the descriptions, AD represents aggregate demand; SRAS represents short-run aggregate supply; LRAS represents long-run aggregate supply. SRAS if the expected price level is 140 SRAS if the expected price level is 110 a O O O O O b 7 O O O с b O O 8 d O O O O O Not Shown ? O O O O O Suppose the economy is currently in short-run equilibrium at point Z. In this case, the economy is producing at an output level…
Question 3 of 22 ⒸMacmillan Learning The interest rate effect is the change in exports and imports resulting from changes in the interest rate caused by changes in the aggregate price level. is the change in interest rates caused by changes to government purchases. O is the change in investment spending and government purchases caused by changes in money demand. O is the change in consumer and investment spending due to changes in interest rates resulting from changes in the aggregate price level. O is the change in real GDP caused by the Federal Reserve adjusting target interest rates. 4