Homework Answers
Due to the increase in oil prices, cost of production will increase. It will cause AS to decrease and shift to the left. It will create recessionary gap and at a higher price. In this scenario, government spending will increase and or tax will decrease to stimulate the demand. It will cause AD to shift to the right and achieve steady state or long run equilibrium.
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8. Using the AS/AD model, show the effect of a major, temporary increase in oil prices....
9. Using the AS/AD model, show the effect of a major, temporary increase in oil prices...
9. Using the AS/AD model, show the effect of a major, temporary increase in oil prices when firms and consumers have rational expectations such that . Describe the process of returning to the steady state
6. Using the AS/AD model, show the effect on the US economy of a world- wide recession reducing demand for US expor...
6. Using the AS/AD model, show the effect on the US economy of a world- wide recession reducing demand for US exports for a number of periods before the world economy recovers. Describe the process of returning to the steady state.
Q3: Aggregate Suppy and Demand (a) If oil prices increase, use the AS-AD model to show...
Q3: Aggregate Suppy and Demand (a) If oil prices increase, use the AS-AD model to show how this increase in oil prices as an adverse supply shock. How would this affect, the price level? real GDP and unemployment. (b) What is a policy response the Fed could do to help alleviate the adverse shock in part (a)? Graph how this response would work? What are the associated trade-offs of the policy given the model?
Suppose the country of Isaias-opolis has a major increase in investment. Using the AD-AS Model and...
Suppose the country of Isaias-opolis has a major increase in investment. Using the AD-AS Model and assuming the country is initially in its long run equilibrium, what will be the effect in the long run? Group of answer choices Price level rises and output is unchanged Price level rises and output rises Price level falls and output rises Price level falls and output is unchanged
AS/AD: Assume the economy is currently at potential output. Then, a major increase in stock prices...
AS/AD: Assume the economy is currently at potential output. Then, a major increase in stock prices makes consumers feel wealthier, leading them to increase their consumption spending. a) What does it mean for the economy to be at “potential output”? What determines the potential output? b) Use the Aggregate Supply and Demand model to analyze the short-run impact that this new policy will have on real GDP and the price level. This is the “Shock.” c) Assuming no other changes...
Using the labor market, production function. and AS/AD graphs of the classical model, show the effects...
Using the labor market, production function. and AS/AD graphs of the classical model, show the effects of immigration (an increase in labor supply). What are the effects on real wages, the quantity of labor, real GDP, and prices? Explain and show graphically.
Suppose that oil prices increase. This has two effects: (a) firms’ costsjump up and (b) because...
Suppose that oil prices increase. This has two effects: (a) firms’ costsjump up and (b) because more of consumers’ income goes to pay for oil imports, there is lessto spend on U.S. goods. [We emphasized (a) but ignore (b) in this chapter.] Assume the Fedholds the real interest rate constant. Show what happens to the AE (AD) and Phillips curveand to output and inflation.
1.Graph an increase in money supply and in a separate graph, show the effect this will...
1.Graph an increase in money supply and in a separate graph, show the effect this will have on the AD/AS model. Explain the link between the two graphs. 2. Graph an increase in Aggregate supply. How will this effect the phillips curve?
Question 2 (20 marks) a) Show graphically and explain the effect of a decrease in the...
Question 2 (20 marks) a) Show graphically and explain the effect of a decrease in the population growth rate on the steady state capital to labour ratio in the Solow’s neoclassical growth model. (20 marks) b) Show graphically and explain the effects of the steady state of an increase in the quantity of land in the Malthusian growth model. (20 marks)
1. The best definition of inflation is a(n): a temporary increase in prices. b. increase in...
1. The best definition of inflation is a(n): a temporary increase in prices. b. increase in the price of one important commodity such as food. c. persistent increase in the general level of prices as measured by a price index. d. increase in the purchasing power of the dollar. 2. Inflation: a. reduces the cost-of-living of the typical worker. b. is measured by changes in the cost of a typical market basket of goods between time periods. c. causes the...
9. Using the AS/AD model, show the effect of a major, temporary increase in oil prices when firms and consumers have rational expectations such that . Describe the process of returning to the steady state
6. Using the AS/AD model, show the effect on the US economy of a world- wide recession reducing demand for US exports for a number of periods before the world economy recovers. Describe the process of returning to the steady state.
Question 2 (20 marks) a) Show graphically and explain the effect of a decrease in the population growth rate on the steady state capital to labour ratio in the Solow’s neoclassical growth model. (20 marks) b) Show graphically and explain the effects of the steady state of an increase in the quantity of land in the Malthusian growth model. (20 marks)
1. The best definition of inflation is a(n): a temporary increase in prices. b. increase in the price of one important commodity such as food. c. persistent increase in the general level of prices as measured by a price index. d. increase in the purchasing power of the dollar. 2. Inflation: a. reduces the cost-of-living of the typical worker. b. is measured by changes in the cost of a typical market basket of goods between time periods. c. causes the...
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