1. Describe the sequence of events that real business cycle theorists would use to explain how an adverse supply shock would impact the economy. Use your answer to explain why it is easy to confuse cause and effect between changes originating on the supply side and those that begin on the demand side.
The unexpected events occurred in the economy lead to boom or
curse in the business cycle. These dramatic changes will affect the
future output and growth rate. The adverse supply shock occurred
due to the unexpected increase in costs of production. This may be
rise in price of factors, rising wage rates, high level of hiring
rate of workers, low level of investments etc. This will make an
adverse supply shock in the production process. This adverse supply
shock will shift the short run aggregate supply curve to left. And
this shift leads to higher inflation rate and lower level of
output. This will reduce the real GDP also. Rising oil prices, bad
weather, declining the productivity rate, wage push inflation,
devaluation or depreciation of exchange rates, supply shock due t
poor harvest are the major adverse supply shocks occurred in our
economy. This supply shock will lead to recession and retards the
economic growth.
This adverse supply shock will lead to demand side deficiencies
also. The rising cost of production will reduce the total
production and this affect the employment rate also. The
unemployment rate increased in the economy due to this supply
shock. This unemployment rate will reduce the consumption pattern
and lower the aggregate demand. The lowering aggregate demand will
increase the price level and this also reduces the output level.
This will affect the investment level and the real GDP rate. This
will continue for long time as demand side effects and supply side
effects.
1. Describe the sequence of events that real business cycle theorists would use to explain how...
An example of a positive real business cycle shock would be .. - a sudden Increase in the money supply ma sudden decline in the working population (due to a fatal disease). the discovery of a new edible crop. ... the sudden decrease in the central bank's Inflation target. Erratic government government behavior can lead to a negative real shock by ... Increasing the perceived risk of Investing or saving - Increasing the inflation target. ... decreasing barriers to new...
1) Thinking back to the business cycle discussion, how would Keynesian economists explain the performance of the economy during the last few years? What has happened to aggregate demand? 2) Next, how would neoclassical economists explain the performance of the economy during the last few years? What has happened to aggregate supply?
Question 1: A business cycle refers to: the short-run fluctuations in real GDP. the life-cycle of firms from infancy to maturity. the flow of goods and services and factors of production through the economy. the long-run trend of increasing real GDP. Question 2: Which of the following industries would experience the greatest increase in demand during an expansion? Accounting services. Baby supply industry. Hair care industry. The furniture industry.
Step 1: Read the following questions, and use what you have learned about how the economy might impact your business industry, and to summarize your responses in 5 full pages. Consider the concepts and questions below when assessing the economy and the impact it may pose on your business: Describe your ideal capitalist economy. Will these conditions maximize your sustainability and profitability? What indicators would you use to measure goods and services? What happens when the quantity demand is impacted?...
Assume that the economy starts at potential output, and then there is a major decline in new home construction. a) Describe the short-run impact of this change on real GDP and the price level. Be specific about what component(s) of GDP change, and explain the economics behind the changes you describe. b) Assuming no further shocks/changes in policy, describe how the economy will transition from the short-run equilibrium in part a) to its long-run equilibrium. Be sure to explain the...
IS/LM: Use the same setup as #1, but now Investment spending is a function of the real interest rate: I = 10000 – 50000r. Government purchase are now $1200b (makes for nicer numbers). Money demand in the economy is MD= (0.01Y – 800r)P + o. Assume the current money supply is $1400b, the price level/CPI is 100, and there are no money demand shocks to worry about (o = 0). a) Derive the IS curve and the LM curve for...
We have discussed two models that describe the relationship between inflation and economic growth. Which of the following is a property of the New Keynesian Model but NOT the Real Business Cycle (RBC) Model? Monetary policy has no effect on long run economic growth Recessions can be caused by a fall in aggregate demand. Prices are fully flexible in both the short and long run. All the above are properties of the RBC model. None of the above are properties...
Questions 4 and 5 please l 1B explain business-cycle fluctuations? What might ca ply curve nee such a shift? Section 11.7) An eco to initiate a major Bl Figure 11.11a.How does the inated by two industries, both of which are considering w labour sup- 11.7)An in vestment project. If both industries inves economy is dominated by two in industry makes tries invest, then em profits of $5 billion. However, if neither industry are h eake invests, the hakes $2 billion...
1.Explain how permanent increase in national real money demand functions affects real and nominal exchange rates in the long run. 2.A new government is elected and announces that once it is inaugurated, it will increase money supply. (a) Use the DD-AA model to study the economy‘s response to this announcement. (b) What is the further effect on the economy when the monetary expansion is actually implemented as promised?
Name: e xemSon Port I: 30 Multiple Choice Questions (One point for each correct answer) 1. A mathematical expression relating the amount of output produced to quantities of capital and labor utilized is the production function. Suppose the economy's production function is Y- 75x N xK, where K- 1000 and N 20, what happens if both inputs K and N are tripled? a. Y doubles. b. Y triples. c. Y quadruples d. Y is unchanged. 2. An adverse supply shock...