In this question, you should analyze the effect of price control to keep low inflation rate in the AD-AS framework. For simplicity, assume that the economy is in a full employment equilibrium initially. The government controls prices in stores to avoid inflation. Namely, they do not allow the changes in prices in stores. What would happen to output and the price level when the central bank increases money supply? Explain using the AD-AS diagram.
What would happen to output and the price level once the government eliminates price control in the question above? Explain using the AD-AS diagram.
How is your answer to question (1) related with question (2)? Is there any similarity?
In practice, is there any problem/issue for this price control? Explain your thoughts. Hint: Again, you can think about how your answer to question (1) is related with question (2) and (3). Instead of the similarity, is there any difference?
When central bank increased money supply in market using an expansionary monetary policy the market will have enough room for growth as Consumption will boost and individual will have higher savings. This will cause aggregate demand to rise and inflation to rise because prices also rise for services and non core sector. Since price control is seen the core inflation doesnt rise and this offsets the overall inflation. Hence real GDP or output also grows marginally.
The services or noncore Inflation will rise as there is no price control however the core inflation will remain same as store level core prices ate controlled. Now if Government eliminated price control the overall demand and consumption growth rises substantially and hence GDP also grows marginally albeit grows.
In this question, you should analyze the effect of price control to keep low inflation rate in the AD-AS framework. For simplicity, assume that the economy is in a full employment equilibrium initiall...
Assume the economy as reflected in the equilibrium point of AD/AS is at full employment GDP at an output of $17 trillion Consumer confidence has increased with news of large stock market gains. As a result, $ 1 trillion dollars of spending increases from consumers. What happens initially to AD and what is the level of output now? Assuming a mpc of 0.8, what will happen to real GDP after all rounds of spending have been completed? Show your calculation...
(c)? 2. The IS/LM diagram and AS/AD diagram below show the current equilibrium in an economy 79 13 13 12 LM AO Let the full-employment output be 200 (a) What are the current output, interest rate/and price level? cuhent ony (b) What will be the output, interest rate, and price level in the long run? \rCe.et vat _ 4./. c) What will be the output, interest rate, and price level in the long run if the government u iscalpoligg to...
Aggregate supply and demand problems For each scenario analyze the impacy of the “shocks” on the nation’s employment rate, real GDP, GDP gap anf price level. In addition illustrate the impact of each shock using an aggregate supply and demand diagram. Finally, analyze the policy options available to the government to offset the harmful impact of each of these shocks. UL uld wnen & bank becomes insolvent? Explain res B. Aggregate Supply and Demand Problem ur knowledge of aggregate supply...
Question 4 Assume that after years of economic recovery, the US economy has reached its natural rate of output. Explain with a diagram how a continuous rise in oil prices affects the price and output levels of the US. Based on your answer in (a), what kind of fiscal policy can be implemented to restore the output level back to its natural rate? Illustrate your answer with a diagram. What will happen to the price and output levels? How does...
H. = H, = H (6) You are to assume that H , the long-run demand for housing, is equal to the demand for housing you found in part 1. Using this, write out expressions for the two semi-elasticities of long-run house prices in terms of each tax rate. 3. What do your equations for the short- and long-run semi-elasticities say about the reaction of house prices in each period? Briefly describe what is happening. 4. The government wants to...
1) The Economy cannot be considered fully employed unless the measured unemployment rate is below 1%. Agree or disagree and explain your answer in a paragraph. What is the current actual u - rate for the US economy as of Sep 2019 Data for 2019 ? Is this unemploymen t rate bel ow or above or equal to u - rate at full employment (usually called natural rate of unemployment or NAIRU)? 2) A) Why would you expect the inflation...
please help with a detailed, fully explained answer for Question 2. thank you Read the case study below and answer the questions. SHORT RUN STABILIZATION AND LONG RUN COMPETITIVENESS: THE LAVITAN CASE Growth of a young country Latvia - a small, young country on the east coast of the Baltic Sea -has recently earned the title of a "tiger". After gaining its independence from the Soviet Union in 1991, the country embarked upon a challenging road of transitioning from a...
SECTION A (50) Read the case study below and answer the questions. SHORT RUN STABILIZATION AND LONG RUN COMPETITIVENESS: THE LAVITAN CASE Growth of a young country Latvia – a small, young country on the east coast of the Baltic Sea – has recently earned the title of a ‘‘tiger’’. After gaining its independence from the Soviet Union in 1991, the country embarked upon a challenging road of transitioning from a planned to a market economy. The first decade proved...
Chapter overview 1. Reasons for international trade Resources reasons Economic reasons Other reasons 2. Difference between international trade and domestic trade More complex context More difficult and risky Higher management skills required 3. Basic concept s relating to international trade Visible trade & invisible trade Favorable trade & unfavorable trade General trade system & special trade system Volume of international trade & quantum of international trade Commodity composition of international trade Geographical composition of international trade Degree / ratio of...