Here we noted that inflation moving from period 1 to period 2, then the expected inflation is 1. which decline the outut by,
The another change in inflation is,
,
So the resulting change in output would be,
So, the output in period 3 is,
The further move in inflation would,
So the inflation in period 3 is,
2. Consider an economy in a long-run equilibrium with Y = 40 and 1=3. A demand...
Suppose that the economy is at long-run equilibrium. a. Draw a diagram to illustrate the state of the economy. Be sure to show aggregate demand, short-run aggregate supply, and long-run aggregate supply. b. Now suppose that a severe decline in the value of homes has affected the entire economy. Use your diagram to show what happens to output, employment, and the price level in the short run. Explain how households and businesses will adjust to this unanticipated shock to the...
Suppose the economy starts out in a long-run equilibrium at potential GDP.. Draw the economy’s short-run and long-run Phillips curves in one graph an AS/AD diagram with potential GDP shown in a second graph. Suppose a wave of business pessimism reduces aggregate demand. Show the effect of this shock on your diagrams from part a). Can the government return the economy to its original inflation rate and original unemployment rate using fiscal policy? Now start over with the economy back...
6. Assume that the AD curve of the economy is given by Y 15-100π + 1, where m is a demand shock (animal spirits, government spending, or money supply). The AS curve is given by 50(r where u is a supply shock (oil price, productivity). The variable π is the inflation rate, ETIS expected inflation rate, Y is output, and Y is long-run output. For numerical values, Y - Answer each equation using both graphs and math. Plot the above...
The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $600 billion. Suppose a sudden and severe contraction in the housing market reduces the value of homes and causes consumers to spend less.Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the housing market slump.In the short run, the decrease in consumption spending associated with the housing...
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
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 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. Consider an economy that is in the short-run equilibrium, above the level of the tructural output. i) What kind of shock could have caused this expansion in the production? Discuss the economic adjustments using the aggregate supply and demand model (OA-DA). (ii) In the absence of other exogenous shocks, explain how the economy would return to its level of structural equilibrium. 1. Consider an economy that is in the short-run equilibrium, above the level of the tructural output. i)...
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)...
The graph shows the economy in long-run equilibrium Then the world economy expands and the demand for U.S.-produced goods increases Price level (GDP deflator, 2009-100) 14 Draw a curve that shows 1) the effect of increased demand for U.S.-produced goods. Label it 1 2) the effect of a rising money wage rate that returns the economy to full employment. Label it 2. Draw a point at the new long-run equilibrium 13 SAS 12 An economy is in a long-run equilibrium....