Homework Answers
"C"
As the demand shock is unanticipated it will increase the demand in the short run and as the variable adjust it will fall back to the long run output. the answer is C. Price will be higher and in the long run it will be same as long run expected price.
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Suppose there is a new classical model. Suppose there is a positive demand side shock. What...
7. Suppose a shock hits the economy that abides by a Classical model and you observe...
7. Suppose a shock hits the economy that abides by a Classical model and you observe the following changes: . Overall output increases . Marginal productivity of workers decrease Which of the following could lead to these observations? A. Flood in Minnesota, which destroyed the production facility. B Invention of personal computers C. A huge lake was drained and new fertile land was revealed D. Immigrants get working visas and join the labor force. 8. Consider the labor demand curve...
Question 1) Suppose the economy is operating at both short-run and long-run equilibrium. Suppose consumers’ wealth incre...
Question 1) Suppose the economy is operating at both short-run and long-run equilibrium. Suppose consumers’ wealth increases, and they begin spending more on Tide Pod laundry detergent for entertainment purposes. Draw the graphs and shifts for the following questions and provide the specific mechanisms and channels. a) What happens in the short run to both the aggregate price level and aggregate output when this shock occurs? b) What will happen in the long run to both aggregate price level and...
If the economy begins at long-run equilibrium at potential output when a negative aggregate demand shock...
If the economy begins at long-run equilibrium at potential output when a negative aggregate demand shock occurs,l initially there will be a ____________________ equilibrium because prices are _____________ in the short run. a. new long-run equilibrium below potential output, sticky b. new short-run equilibrium below potential output, sticky c. new short-run equilibrium above potential output, sticky d. new short-run equilibrium below potential output, flexible
1. IS-MP-AD-IA model. In December 2017, the U.S. President and Congress passed a substantial decrease in...
1. IS-MP-AD-IA model. In December 2017, the U.S. President and Congress passed a substantial decrease in taxes. Assume that the U.S. economy starts out at potential output at the end of 2017 a) What is the effect of the tax cut on the IS and MP curves in the short run? b) According to the IS-MP model, what would happen to output and the real interest rate in c) What would happen to the AD and IA curves in the...
Graph this question. Consider the aggregate demand and aggregate supply model from class. Suppose that the...
Graph this question.
Consider the aggregate demand and aggregate supply model from class. Suppose that the economy is initially in short-run and long-run equilibrium. Suppose then that a hurricane hits the entire East coast of the US, destroying half of the orange growing trees in Florida. What happens to inflation and output from these changes in the short-run? What happens to these variables in the long-run?
4) Now, let's look at the LONG-RUN. Suppose that the economy is initially at a long-run...
4) Now, let's look at the LONG-RUN. Suppose that the economy is initially at a long-run equilibrium, P, YF (marked by the "I"on the graph below). Suppose there is a positive demand shock (eg, such as a significant increase in wealth). Which curve will this affect (shift the appropriate curve and mark the new SHORT-RUN equilibrium as "2" on the graph below. (8) a) What is the effect on inflation and unemployment if there is a positive demand shock? (8)...
165 9. Which of the following should not be considered to be a supply side policy?...
165 9. Which of the following should not be considered to be a supply side policy? a. a decrease in the deficit b. a reduction of the tax on consumption c. a middle class tax cut d. none of the above 10. Whenever the aggregate supply curve shifts, the short rur aggregate supply curve also shifts. However, it is not the case that whenever the short run aggregate supply curve shifts, the long run aggregate supply curve also shifts. a....
6.The Aggregate Demand (AD) curve is obtained by combining: (a) The consumption function, planned investment and...
6.The Aggregate Demand (AD) curve is obtained by combining: (a) The consumption function, planned investment and the central bank's policy reaction function. (b) The consumption function and the Taylor rule. (c) The equation for PAE, the central bank's policy reaction and Y = PAE. (d) Y=PAE and the consumption function. (e) The equation for planned investment and the central bank policy reaction function. 7.The AD curve is generally assumed to have a negative slope. However, which of the following would...
aggregate demand, output and inflation. and shock and the effects of a positive demar to
aggregate demand, output and inflation. and shock and the effects of a positive demar to
Some economists think that the coronavirus will imply a STRONGER SUPPLY shock than demand shock. If...
Some economists think that the coronavirus will imply a STRONGER SUPPLY shock than demand shock. If that is the case what would you expect to happen to inflation and output? Inflation will go DOWN and output will drop below potential. Inflation will go UP and output will drop below potential. Inflation will go UP and output will STAY below potential. Inflation will go DOWN and output will drop STAY at potential.
7. Suppose a shock hits the economy that abides by a Classical model and you observe the following changes: . Overall output increases . Marginal productivity of workers decrease Which of the following could lead to these observations? A. Flood in Minnesota, which destroyed the production facility. B Invention of personal computers C. A huge lake was drained and new fertile land was revealed D. Immigrants get working visas and join the labor force. 8. Consider the labor demand curve...
1. IS-MP-AD-IA model. In December 2017, the U.S. President and Congress passed a substantial decrease in taxes. Assume that the U.S. economy starts out at potential output at the end of 2017 a) What is the effect of the tax cut on the IS and MP curves in the short run? b) According to the IS-MP model, what would happen to output and the real interest rate in c) What would happen to the AD and IA curves in the...
Graph this question.
Consider the aggregate demand and aggregate supply model from class. Suppose that the economy is initially in short-run and long-run equilibrium. Suppose then that a hurricane hits the entire East coast of the US, destroying half of the orange growing trees in Florida. What happens to inflation and output from these changes in the short-run? What happens to these variables in the long-run?
4) Now, let's look at the LONG-RUN. Suppose that the economy is initially at a long-run equilibrium, P, YF (marked by the "I"on the graph below). Suppose there is a positive demand shock (eg, such as a significant increase in wealth). Which curve will this affect (shift the appropriate curve and mark the new SHORT-RUN equilibrium as "2" on the graph below. (8) a) What is the effect on inflation and unemployment if there is a positive demand shock? (8)...
165 9. Which of the following should not be considered to be a supply side policy? a. a decrease in the deficit b. a reduction of the tax on consumption c. a middle class tax cut d. none of the above 10. Whenever the aggregate supply curve shifts, the short rur aggregate supply curve also shifts. However, it is not the case that whenever the short run aggregate supply curve shifts, the long run aggregate supply curve also shifts. a....
aggregate demand, output and inflation. and shock and the effects of a positive demar to
Some economists think that the coronavirus will imply a STRONGER SUPPLY shock than demand shock. If that is the case what would you expect to happen to inflation and output? Inflation will go DOWN and output will drop below potential. Inflation will go UP and output will drop below potential. Inflation will go UP and output will STAY below potential. Inflation will go DOWN and output will drop STAY at potential.
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