6. Using AD-AS model, please draw a diagram showing economy operating under its potential capacity. Describe...
6. Using AD-AS model, please draw a diagram showing economy operating under its potential capacity. Describe two ways how economy could have gotten there.
Homework Answers
This is situation is described as recessionary gap in which the economy produces less than its potential level. In the diagram we can see that the actual production takes place to the left of the LRAS, at E. Output Y* is less than potential output Yf.
One of the reason can be deficient demand which can be the result of increased taxes or decreased government spending. Another reason can be business pessimism where economic outlook for future is not very optimistic. Hence investment has done down which has shifted AD to the left. resulted in lower GDP
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6. Using AD-AS model, please draw a diagram showing economy
operating under its potential capacity. Describe...
1. The diagram below shows an AD/AS model for a hypothetical economy. The economy begins in...
1. The diagram below shows an AD/AS model for a hypothetical economy. The economy begins in long-run equilibrium at point A. Price Level - AD, -t-AD₂ 1250 700 800 900 1000 Real GDP C. Describe a plausible economic event (ie. Shock) that could have shifted the AD curve from AD1 to AD2? D. Please describe the adjustment process that would return the economy to its long-run equilibrium following the negative aggregate demand shock shown in the diagram.
Please assist with the following: Using the AD/AS model, if the current equilibrium is in the...
Please assist with the following: Using the AD/AS model, if the current equilibrium is in the steep section of the aggregate supply curve, then this suggests that: The economy is in recession GDP is substantially below potential OR Unemployment is low? Next: How does an economist depict cyclical unemployment on an aggregate demand-aggregate supply (AD-AS) diagram? Showing how close the economy is to potential or full employment level of GDP. By depicting the size of the inflationary gap or By...
1. (50 points) Draw a graph of the overall economy using the Neoclassical economic model, including...
1. (50 points) Draw a graph of the overall economy using the Neoclassical economic model, including the LRAS, SRAS, and AD curve. Draw the model so that this economy is operating at its full potential. 1. Based on this information, is the economy operating with an unemployment rate that is above or below the natural unemployment rate? 2. If AD were to suddenly increase, what would happen to the price level and Real GDP in this economy immediately after the...
The AD-AS Model of the Economy Potential GDP Price Level 115 100 90 AD RGDP in...
The AD-AS Model of the Economy Potential GDP Price Level 115 100 90 AD RGDP in trillions 15 17 What effect would a decrease in the money supply have in the graph above? How would the decrease in the money supply impact the government budget?
Consider the following diagram showing the AD curves in two different economies. One economy is Autarkland—it...
Consider the following diagram showing the AD
curves in two different economies. One economy is Autarkland—it
does not trade with the rest of the world (autarky is a
situation in which a country does not trade with other countries).
The other economy is Openland—it exports to and imports from the
rest of the world.
Explain why an increase in the domestic price level
(for a given exchange rate) reduces net exports in Openland. How
would you illustrate this with the...
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...
1). Draw a fully-labeled aggregate demand/aggregate supply diagram showing an economy that is weak – it...
1). Draw a fully-labeled aggregate demand/aggregate supply diagram showing an economy that is weak – it is producing below its full employment (“potential) GDP. a. What monetary policy would be appropriate for the economy? (contractionary or expansionary policy?) b. What would happen to interest rates in the economy if the Central Bank uses this policy? c. Show in your diagram how the policy impacts the economy, being sure to show what curve(s) moves, and what happens to prices and output...
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.
How fiscal policies work? A key feature in AD/AS model is that economy can deviate from...
How fiscal policies work? A key feature in AD/AS model is that economy can deviate from its potential output in the short run and eventually it will move comparable to this level. The Potential GDP/output is the maximum level of output a economy can produce given the existing resources and technology. Keynesian model assumes two types of policies to shift the AD/AS curves; namely, demand management policies and supply management policies. Both of these policies can be either monetary policies...
Draw and carefully describe a graph that utilizes theAggregate Demand/Aggregate Supply model that would illustrate...
Draw and carefully describe a graph that utilizes the
Aggregate Demand/Aggregate Supply model that would illustrate the
current state of the aggregate economy in the United States. The
Aggregate Demand/Aggregate Supply Model is first explained in
Chapter 11of your text. Carefully explain your graph.You should draw your own AD/AS graph which you can then scan
and paste into your post. Your graph needs to be clearly labeled
and explained carefully. Make sure that your graph includes an
aggregate demand (AD)...
1. The diagram below shows an AD/AS model for a hypothetical economy. The economy begins in long-run equilibrium at point A. Price Level - AD, -t-AD₂ 1250 700 800 900 1000 Real GDP C. Describe a plausible economic event (ie. Shock) that could have shifted the AD curve from AD1 to AD2? D. Please describe the adjustment process that would return the economy to its long-run equilibrium following the negative aggregate demand shock shown in the diagram.
1. (50 points) Draw a graph of the overall economy using the Neoclassical economic model, including the LRAS, SRAS, and AD curve. Draw the model so that this economy is operating at its full potential. 1. Based on this information, is the economy operating with an unemployment rate that is above or below the natural unemployment rate? 2. If AD were to suddenly increase, what would happen to the price level and Real GDP in this economy immediately after the...
The AD-AS Model of the Economy Potential GDP Price Level 115 100 90 AD RGDP in trillions 15 17 What effect would a decrease in the money supply have in the graph above? How would the decrease in the money supply impact the government budget?
Consider the following diagram showing the AD
curves in two different economies. One economy is Autarkland—it
does not trade with the rest of the world (autarky is a
situation in which a country does not trade with other countries).
The other economy is Openland—it exports to and imports from the
rest of the world.
Explain why an increase in the domestic price level
(for a given exchange rate) reduces net exports in Openland. How
would you illustrate this with the...
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.
Draw and carefully describe a graph that utilizes the
Aggregate Demand/Aggregate Supply model that would illustrate the
current state of the aggregate economy in the United States. The
Aggregate Demand/Aggregate Supply Model is first explained in
Chapter 11of your text. Carefully explain your graph.You should draw your own AD/AS graph which you can then scan
and paste into your post. Your graph needs to be clearly labeled
and explained carefully. Make sure that your graph includes an
aggregate demand (AD)...
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