4. Draw diagrams fora) inflationary gapb) recessionary gapand explain why any economy experiences inflationary and recessionary gaps? (hint:over or underuse of resources)

a) Inflationary Gap:Definition: An "inflationary gap" refers to a situation of an economy when its…

Answered: 4. Draw diagrams for a) inflationary…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 6SCQ: The Consumer Price Index is subject to the substitution bias and me quality/new goods bias. Are the...

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22. Which of the following is the technical definition of a recession? A. a fall in GDP for four consecutive quarters B. a rise in unemployment for two consecutive quarters C. a fall in GDP for two consecutive quarters D. a rise in unemployment for four consecutive quarters
2. Aggregate supply (AS) denotes the relationship between the that firms choose to produce and sell and the inputs fixed. (A) total quantity; price level for output (B) type of goods; input price of raw materials (C) price of goods; number of employees (D) total inputs; types of goods holding the price of
8- What is an increase in the price level in an economy called? a) Inflation B) stagflation NS) full employment D) national income TO) Deflation
The Consumer Price Index is subject to the substitution bias and me quality/new goods bias. Are the Producer Price index and the GDP deflator also subject to these biases? Why or why not?
6. Nonprice-level determinants of aggregate supply The lowing graph shows an increase in aggregate supply (AS) in a hypothetical economy. Specifically, aggregate supply shifts to the right from AS1 to S₂, causing the quantity of output supplied at a price level of 125 to rise from $250 billion to $350 billion. PRICE LEVEL (CPI) 175 150 125 100 75 50 25 0 0 50 AS, 100 150 200 250 REAL GDP (Billions of dollars) 300 350 AS₂ 400 ©
6. Aggregate expenditure and income Suppose the following table shows consumption (C), investment (I), government purchases (G), and net exports (NX) in a hypothetical economy for various levels of real GDP. Assume that the price level remains unchanged at all levels of real GDP. Real GDP с G NX (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) (Billions of dollars) 500 250 250 200 -150 600 325 250 200 -150 700 400 250 200 -150 800 475 250 200 -150 900 550 250 200 -150 The following graph shows real GDP on the horizontal axis and aggregate expenditure on the vertical axis. Use the orange line (square symbol) to plot a 45-degree line on this graph. Then use the blue points (circle symbols) to plot the aggregate expenditure line for this economy. Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. AGGREGATE EXPENDITURES (Billions of dollars) 1000 900 800 700 600 500 400 400…
4. Determinants of aggregate demand The graph below is associated with a hypothetical country. Consider an increase in aggregate demand (AD). Specifically, aggregate demand shifts to the right from AD, to AD,, causing the quantity of output demanded to rise at each price level. For instance, at a price level of 140, output is now $400 billion, where initially it was $300 billion PRICE LEVEL 170 160 130 130 120 110 100 8 0 II 200 100 II II II I I 100 300 400 OUTPUT (Billions of dollars) AD₁ 600 700 800 The following table lists several determinants of aggregate demand. (2)
Explain what would happen to AS or AD (choose AS or AD according to the case) in an economy in the cases below. In your explanation discuss whether AS or AD shifts to the left or right and the conse prices and quantities produced. A. Reduction of taxes B. Discovery of a new technology. C. Increases in unemployment. D. Increases in money supply. (3
2. Activities included (and not included) in the calculation ofGDP The gross domestic product (GDP) of the United States is defined as the all in a given period of time. Based on this definition, indicate which of the following transactions will be included in (that is, directly increase) the GDP of the United States in 2020. 2020 GDP Scenario Included Excluded An accountant starts a client's 2020 tax return on April 14, 2021, finishing it just before midnight on April 15, 2021. Calculo, a U.S. electronics company, produces a calculator at a plant in Indonesia on March 11, 2020. Calculo imports the calculator into the United States on May 29, 202o. Chocolate Express, a Swiss chocolate company, produces a chocolate bar at a plant in Illinois on December 14, 2020. An elementary school student buys the chocolate bar on December 24. Awake Cafe, a U.S. coffee company, produces a latte at its location in Minneapolis on January 6, 2020. It sells the latte to a customer immediately. Graincorp,…
1. (a) The following equations describe an economy: C-100+ 0.75Yd I-50-25r T-G-50 Where C is aggregate consumption, Y is disposable income, I is aggregate investment. I is taxes, G is government purchases and r is the rate of interest. Derive the IS curve for the economy. Show the area of excess demand and excess supply in the goods market. (b) Draw the graph and explain the derivation of IS curve. 2. (a) Given the following data about the monetary sector of the economy: Ma -0.4Y-80r M₁ - 1200 million Where, Ma is demand for money, Y is the level of income, r is the rate of interest and M, is the supply of money. Derive the equation for LM curve and give the economic interpretation of this curve. Show the excess demand and excess supply in the money market. (b) Draw the graph and explain the derivation of LM curve. 3. Consider the following economy: C-100+ 0.8Yd I-50-25, G-T-50 M' P -200 M₁-Y-25r 1. Calculate the IS and LM curves. 2. Calculate the equilibrium levels of output (national…
4. Determinants of aggregate demand The graph below is associated with a hypothetical country. Consider an increase in aggregate demand (AD). Specifically, aggregate demand shifts to the right from AD₁ to AD₂, causing the quantity of output demanded to rise at each price level. For instance, at a price level of 140, output is now $400 billion, where initially it was $300 billion. PRICE LEVEL 170 160 150 140 130 120 110 100 90 + 0 100 I 200 I | -+ 1 I I I AD ₂ 2 AD₁ 300 400 500 600 700 800 OUTPUT (Billions of dollars) The following table lists several determinants of aggregate demand. (?) Fill in the missing values in the table by selecting the change in each scenario required to increase aggregate demand. Change Required to Increase AD Interest rates Domestic currency value relative to the foreign currency Consumer expectations about future profitability Government spending

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4. Draw diagrams for a) inflationary gap b) recessionary gap and explain why any economy experiences inflationary and recessionary gaps? (hint: over or underuse of resources)