PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Chapter 15.A, Problem 15A.1CC
(a)
To determine
The algebraic equation for aggregate
(b)
To determine
The algebraic equation for aggregate demand when Fed implements tightening
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Concerning the Great Depression; the stock market crash of 1929, collapse of the banking system, and collapse of the money supply all were factors that could be modeled as
a leftward shift of SRAS
a rightward shift of SRAS
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E.
2.
4)During a 2008 interview, then German Finance Minister
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downward economic [growth] and high inflation rates
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the short-run aggregate supply curve from its original
position, SRAS,, to its new position, SRAS2, with the
new equilibrium point E2 in the accompanying figure.
In this question, we try to understand why stagflation
is particularly hard to fix using fiscal policy.
Aggregate
price
level
LRAS
SRAS2
SRAS,
AD1
Real GDP
Recessionary gap
a. What would be the appropriate fiscal policy response
to this situation if the primary concern of the govern-
ment was to maintain economic growth? Illustrate
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to this situation if the…
In this question, we assume Canada is a closed economy and is in its long-run equilibrium. TransCanada announced that they will not proceed with the East Energy pipeline in October 2017.
a) According to the long-run classical model, what happens to the equilibrium levels of output, real interest rate, and investment in Canada after TransCanada made this announcement? What happens to the real wage in Canada? Explain your answer with the aid of TWOdiagrams - one for the loanable funds market and one for the labour market.
b) (Continued from part a) As time passes (i.e., in the very long run which will be 10-15 years from now), what happens to the stocks of productive inputs in Canada? How would this change in the stocks of productive inputs affect the equilibrium levels of output and real interest rate in Canada? What happens to the real wage in Canada? Explain, and support your answer by a new set of loanable funds market and one for the labour market diagrams
Chapter 15 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
Ch. 15.A - Prob. 15A.1CCCh. 15 - Prob. 1RQCh. 15 - Prob. 2RQCh. 15 - Prob. 3RQCh. 15 - Prob. 4RQCh. 15 - Prob. 5RQCh. 15 - Prob. 6RQCh. 15 - Prob. 7RQCh. 15 - Why, in the absence of public beliefs that the...Ch. 15 - Prob. 9RQ
Ch. 15 - Prob. 10RQCh. 15 - Prob. 1PCh. 15 - For the economy in Problem 1, suppose that...Ch. 15 - Prob. 3PCh. 15 - Prob. 4PCh. 15 - For each of the following, use an AD-AS diagram to...Ch. 15 - Prob. 6PCh. 15 - Suppose that a permanent increase in oil prices...Ch. 15 - An economy is initially in recession. Using the...Ch. 15 - Prob. 9PCh. 15 - Prob. 10PCh. 15 - Prob. 11PCh. 15 - Prob. 15.1CCCh. 15 - Prob. 15.2CCCh. 15 - Prob. 15.3CCCh. 15 - Prob. 15.4CCCh. 15 - Prob. 15.5CCCh. 15 - Prob. 15.6CCCh. 15 - Prob. 15.7CCCh. 15 - Prob. 15.8CCCh. 15 - Prob. 15.9CCCh. 15 - Prob. 15.10CC
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- During a 2008 interview, then German Finance Minister Peer Steinbrueck said, "We have to watch out that in Europe and beyond, nothing like a combination of downward economic [growth] and high inflation rates emerges-something that experts call stagflation." Such a situation can be depicted by the movement of the short-run aggregate supply curve from its original position, SRAS,, to its new position, SRAS2, with the new equilibrium point E2 in the accompanying figure. In this question, we try to understand why stagflation is particularly hard to fix using fiscal policy.arrow_forwardThe AD/AS model is static. It shows a snapshot of the economy at a given point in time. Both economic growth and inflation are dynamic phenomena. Suppose economic growth is 3% per year and aggregate demand is growing at the same rate. What does the AD/AS model say the inflation rate should be?arrow_forwardSuppose velocity rises and the money supply falls: How will things change in the AD-AS framework if a change in the money supply is completely offset by a change in velocity? The fall in velocity could shift the AD curve to the right by the same amount as the increase in the money supply shifts the AD curve to the left. The increase in velocity could shift the AD curve to the right by the same amount as the fall in the money supply shifts the AD curve to the left. A change in the money supply would decrease Real GDP, the short-run price level, and the long-run price level. The fall in velocity would shift the AD curve to the left by the same amount as the increase in the money supply shifts the AD curve to the right.arrow_forward
- what is the impact of a contractionary policy on the U.S. economy from a new keynesian point of view? Show the impact using graphs and formulas of Taylor Rule.arrow_forwardThe effect of Federal Reserve action (or inaction) in the AD-AS model The following graph shows an economy that is currently producing at point A (grey star symbol), which corresponds to the intersection of the AD1AD1 and SRAS1SRAS1 curves. According to the graph, the potential output of this economy is $16 trillion $12 trillion $11 trillion $14 trillion $10 trillion . Since real GDP is currently $12 trillion (as shown by point A), this level of potential output means there is currently a recessionary gap an expansionary gap of $3 trillion $4 trillion $1 trillion $5 trillion $2 trillion . Along SRAS1SRAS1, wages would have been negotiated based on an expected price level of 135 140` 145 . Since the actual price level at point A is 140, this means that real wages are lower than the same as higher than had been negotiated, which will decrease increase unemployment. If the Fed does not intervene, these labor market conditions…arrow_forwardSuppose that a given economy, in which the level of production (Y) is not at the natural level (Yn), an economy in which Y#Yn. 1) Using the AS/AD model, give an explanation of what will happen in the future and suggest a fiscal and/or a monetary policy to adjust the output and further analyse the effect of the suggested policy on employment and price level. 2) Illustrate your answer in part 1) by presenting and analysing data from the UK by identifying two occasions since 1950 (each covering a span of 2-5 years), where such an adjustment process occurred.arrow_forward
- Assuming these graphs illustrate the implementation of expansionary macroeconomic policy that increases the total desired spending from AEo to AE1 – the equivalent of shifting the AD curve from ADo to AD1, what else about can be gleaned from the situation depicted? There are multiple answers e) Inflation increases the impact of expansionary policy. d) The resulting increase in equilibrium real GDP will be smaller because the inflation dissipates part of the impact of the original increase in expenditures, thus reducing the autonomous pending multiplier. c) The inflation caused by the shift in AD and an upward sloping AS curve will be reflected in a decrease in AE shown by the AE curve shifting down from AE1 to AE*. a) The Short-Run Aggregate Supply (AS) curve is upward sloping, so as Aggregate Demand (AD) is increased by the expansionary policy leading to an increase in equilibrium real GDP, the shift will also result in some product price…arrow_forwardConsumer spending levels off despite splurge on gambling and streaming https://thenewdaily.com.au/finance/finance-news/2020/06/11/gambling-consumer- spending/ Draw an AS-AD diagram (AS-AD model) for Australia’s economy, showing an initial long run equilibrium. Explain the impact of the weak consumer spending on output and inflation in the short-run, including showing this on your AS-AD diagram. Use a new diagram to help explain what happens to output and inflation in Australia in the short run when federal government introduces a fiscal stimulus package. Describe some of the policy recommendations to help the economy recover from the pandemic in the article?arrow_forwardIn the year 2023, aggregate demand and aggregate supply in the fictional country of Marjan are represented by the curves AD2023 and AS on the following graph. Suppose the natural level of output in this economy is $10 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. 108 AS 107 LRAS 106 А Outcome C 105 104 AD, 2023 AD A 103 102 ADB 101 100 8 10 12 14 16 4 OUTPUT (Trillions of dollars) Economists have forecast that if the government does nothing and the economy continues to grow at the current rate, aggregate demand in 2024 will be given by the ADA curve, resulting in the outcome illustrated by point A. If the government pursues a contractionary policy, aggregate demand in PRICE LEVEL 2]arrow_forward
- The imaginary country of Harris Island has the aggregate supply and aggregate demand curves as Table 24.3 shows. a. Identify the (i) equilibrium basing from the AD/AS diagram attached. b. Would you expect unemployment in this economy to be relatively high or low? c. Would you expect concern about inflation in this economy to be relatively high or low? d. Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Identify the new aggregate equilibrium. e. How will the shift in AD affect the original output, price level, and employment?arrow_forwardConsider an IS-LM model. Suppose the central bank increases the money supply by 5 percent. But the price level also increases increase by 10 percent. A) What will be the change in LM curve? What will be the change in equilibrium interest rate and output? Explain properly using a graph? B) What will be the change in the AD curve? (Hint: first derive the AD curve from IS-LM modeland then consider whether AD will shift to the left or right given the change in LM curve) Given that the SRAS curve is horizontal, what will be the impact of change in AD on price level?arrow_forwardwhat is the impact of a contractionary policy on the U.S. economy from a new keynesian point of view? Show the impact using a graph.arrow_forward
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