Show using a graph how the following shocks would affect equilibrium output. (Which parameters in the Keynesian model change? How does that shift the expenditure schedule? What happens to output as a result?) (a) The housing market collapses (b) Interest rates rise (c) The US dollar depreciates (gets weaker) relative to the Euro (d) Consumer confidence rises in Canada (Hint: use one picture to show what happens I
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- Russia’s invasion of Ukraine is causing energy prices to soar in the euro area (at an annual rate of 39% according to the Economist, June 2022). (1.a) What kind of economic shock is this for the euro area (AD or AS; positive or negative)? Use the AD/AS model to predict the effects of this shock on euro area output, prices, employment, and unemployment. Does it matter whether the shock is permanent or temporary? How must fiscal policy respond if the government’s target is price stability? How will this policy change your answer about prices, employment, and unemployment? Include the AD/AS grap1. Suppose we observe that US economy is experiencing low unemployment (3%), faster-than-average real GDP growth (4%), and increasing inflation (rising from 2% to 4%). a. Draw the AS/AD graph for the kind of shock that would generate these symptoms, and give an example of how that kind of shock might happen. What kind of change in the economy leads to this kind of AS/AD graph? b. Briefly discuss what you see in the graph that corresponds to each of the symptoms. E.g. what part of the picturetells you we have low unemployment? b)Describe the two goals that the Federal Reserve is required to pursue with monetary policy. Given these two goals, what specific actions will the Fed take in reaction to the shock, and how will these affect real GDP in the short run? Be sure to explain how the proposed action helps achieve the Fed's goals.(2) Imagine that you operate an economic forecasting firm. Your stock in trade is that you know the true model of the economy where you work. Assume the following is a description of this economy. Y = C+1+G+ NX. ... C = a + bY. ... 1 = k + gY- hR... G = Go.... NX = n- mY- sR.... ..... (Income identity) (Consumption) .... (Investment) (Government) (Net export) .......... .....*** Y is aggregate real output and R is interest rate. (a)Briefly explain why the investment function is directly related to aggregate real output and inversely related to interest rate. (b)Suppose for this economy the values of the parameters and independent variables are as follows, a = 250, b = 0.55, k = 150, g 0.10, h = 500, Go = 350, n 50, m = 0.05, s 500, R= 5% find the value of aggregate real output Y and the multiplier. %3D %3D %3D %3D %3D %3D %3D %3D (c) Suppose the government financed its budget deficit by borrowing additional 100 from the credit market, by how much will this new spending change the…
- Suppose the economy of the hypothetical country “X” is currently in equilibrium at point A on thegraph. There were two major shocks to the economy in 2020.First shock was related to oil prices; the other was related to consumer confidence about futurebusiness conditions. Oil Shock: The economy X faced a rise in the average price of oil along with the rise of world price ofoil.E) Would an increase in oil prices cause a demand shock or a supply shock? Redraw the diagram toillustrate the effect of this shock by shifting the appropriate curve. What happens to theAggregate output and price level after the shock? (3)F) If policymakers wish to prevent the equilibrium output from changing in response to the oilprice increase, should they use contractionary or expansionary fiscal policy? (Redraw the graphfrom part E and show the change) (4)G) Even if the economy moves back to original Aggregate output, will there be any drawback? (1)Consumer Confidence Index: The Consumer Confidence Index…Consider the relationship between exchange-rate changes, aggregate demand, and monetary policy. a. Suppose the world price for raw materials rises, due to a growing demand for these products. On the AD/AS diagram on the right show the likely effect of this on Canadian aggregate demand, given that Canada is a net exporter of raw materials and assuming, initially, no change in the exchange rate. Use the three-point curve drawing tool to draw the new position of the AD curve. Carefully follow the instructions above, and only draw the required object. Price Level Figure 1 Real GDP AS AD GPlease use the AD-AS model to analyze the effects of monetary policy and fiscal policy on economic outcome in an open economy: a. Please show graphically the shifting of the AD curve after the Fed conducts an expansionary monetary policy in a closed economy (A closed economy means there is no international trade.). How do the price level and the real GDP change? b. Suppose the economy becomes an open economy. Please revise the result that you get in part (a). Please explain how you get the new result using the AD-AS model. c. Please show graphically the shifting of the AD curve after the federal government conducts an expansionary fiscal policy in a closed economy. Please show the crowding-out effect. How do the price level and the real GDP change? d. Suppose the economy becomes an open economy. Please revise the result that you get in part (c). Please explain how you get the new result based on the AD-AS model.
- Suppose you are the president of a hypothetical economy. You have to fix healthcare and run the automobile industry . But Swine flu is breaking all over. a) We know that the economy also suffers from sour expectations about future productivity. Represent in a neatly drawn ISLM figure that, all else equal, those expectations, in conjunction with the flu outbreak described in part A above, could result in a decline in GDP and a decline in real interest rates without any change in the price level. b) Why do prices not rise in the scenario described in part A?Graphically show the likely short-run impact on US real GDP and aggregate price level using the AD/AS model. Explain your prediction. Which curve in the AD/AS model would a change in US consumer consumption affect? Note:- Please avoid using ChatGPT and refrain from providing handwritten solutions; otherwise, I will definitely give a downvote. Also, be mindful of plagiarism. Answer completely and accurate answer. Rest assured, you will receive an upvote if the answer is accurate.1) Explain what will happen in a nation that tries to solve a structural unemployment problem using expansionary monetary and fiscal policy. Draw one AD/ AS diagram, based on the Keynesian model, for what the nation hopes will happen. Then draw a second AD/ AS diagram, based on the neoclassical model, for what is more likely to happen (if drawing your answer is a challenge, please describe your answers in words and/or numbers). 2) Explain why the government might prefer to provide incentives to private firms to do investment or research and development, rather than simply doing the spending itself?
- 1.) The Keynesian AD-AS model describes what happens with price levels when aggregate demand increases. Could you find any evidence from the last ten-fifteen years that might support AD-AS model descriptions of demand-pull inflation, cost-push inflation, and recession? For example, you could find data on the GDP’s of any two countries from 2000 to 2017 to support your findings. 2.) In macroeconomics, the immediate short run is known as a length of time when both input prices and output prices are fixed. In the short-run, input prices are fixed but output prices are variable. In the long run, input prices and output prices can vary. What happens in the immediate short-run when AD falls from AD to AD2 to the price level and output? What happens in the short-run when AD falls from AD to AD2 to the price level and output? What will happen in the long-run?Refer to the figure at right. Suppose the equilibrium moves from E' to E. An event that could have caused this movement is A. an increase in the perceived stability of the U.S. economy. B. an increase in U.S. productivity. C. an increase in the real interest rate in the United States. D. an increase in demand for Japanese−produced goods by U.S. residents.Refer to the figure at right. Suppose the equilibrium moves from E' to E. An event that could have caused this movement is S A. an increase in the perceived stability of the U.S. economy. B. an increase in U.S. productivity. C. an increase in the real interest rate in the United States. D. an increase in demand for Japanese - produced goods by U.S. residents. E E' D1 D2 Quantity of Yen per Day Price per Yen ($)