Suppose that banks are less able to raise funds and so lend less. Consequently, because people...
Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. If nominal wages are sticky, which of the following helps explains the change in output?
a. real wages fall, so firms choose to produce less
b. real wages fall, so firms produce more
c. real wages rise, so firms produce less
d. real wages rise, so firms produce more
Homework Answers
Due to this crisis the aggregate demand in an economy will fall (because of fall in investment level). As the aggregate demand falls and shifts to the left cause a fall in price as well as fall in GDP level.
As the price level falls and nominal wage is sticky, real wage rise, so firms produce less.
So, the correct answer is an option (c).
Add Answer to:
Suppose that banks are less able to raise funds and so lend
less. Consequently, because people...
Assume that banks lend less. This leads to lower borrowing by people and households. As a...
Assume that banks lend less. This leads to lower borrowing by people and households. As a result they cut spending. What happens to the price level and real GDP in the short run? A. both the price level and real GDP rise B. the price level level falls and real GDP rises C. the price level level rises and real GDP falls D. both the price level and real GDP fall
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9. Applying the extended AD-AS model Financial crises, such as the one that impacted many developed...
9. Applying the extended AD-AS model
Financial crises, such as the one that impacted many developed
countries starting in 2007, decrease banks’ ability and willingness
to make loans. Decreased availability of credit decreases
businesses’ ability to make investment purchases and consumers’
ability to buy goods and services. As a result, a financial crisis
is a negative shock for an economy.
The following graph shows an economy’s aggregate demand curve
and its short-run and long-run aggregate supply curves after a
financial...
QUESTION 10 Consider the monthly data, including the estimates for March 2020, and the information in...
QUESTION 10
Consider the monthly data, including the estimates for March
2020, and the information in the articles. Which of the following
is the best analysis of and prediction for the money market in the
U.S. economy for the next few months?
a.
Shortages are causing panic buying by households, which has
increased money demand. Lenders are increasing their lending to
keep up with the needs of households and businesses. Money demand
is increasing more than money supply.
b.
Shortages...
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9. Applying the extended AD-AS model
Financial crises, such as the one that impacted many developed
countries starting in 2007, decrease banks’ ability and willingness
to make loans. Decreased availability of credit decreases
businesses’ ability to make investment purchases and consumers’
ability to buy goods and services. As a result, a financial crisis
is a negative shock for an economy.
The following graph shows an economy’s aggregate demand curve
and its short-run and long-run aggregate supply curves after a
financial...
QUESTION 10
Consider the monthly data, including the estimates for March
2020, and the information in the articles. Which of the following
is the best analysis of and prediction for the money market in the
U.S. economy for the next few months?
a.
Shortages are causing panic buying by households, which has
increased money demand. Lenders are increasing their lending to
keep up with the needs of households and businesses. Money demand
is increasing more than money supply.
b.
Shortages...
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