1. Assume the economy is in long-run equilibrium and AD decreases. According to the Keynesian Model, what will happen to...
1. Assume the economy is in long-run equilibrium and AD decreases. According to the Keynesian Model, what will happen to the equilibrium level of GDP and the Price Level? Does the New (Modern) Keynesian Model say anything different will happen?
2. Assume the economy is in long-run equilibrium and AD decreases. According to the Classical Model, what will happen to the equilibrium level of GDP and the Price Level?
Homework Answers
1. Economy is in long-run equilibrium and AD decreases. According to the Keynesian Model, aggregate supply curve is horizontal which implies that AD will shift to the left and this will reduce GDP only. There is no decrease in the price level. New (Modern) Keynesian Model however suggests that aggregate supply is upward sloping in the short run so that this decrease in AD will reduce GDP as well as the price level in the short run.
2. Assume the economy is in long-run equilibrium and AD decreases. According to the Classical Model, Aggregate supply is vertical which implies that it is fixed at full employment. When AD decreases, AD shifts down but there is no change in real GDP. Only price level decreases which maintains long run equilibrium GDP level.
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1. Assume the economy is in long-run equilibrium and AD decreases. According to the Keynesian Model, what will happen to...
Assume the economy is in long-run equilibrium and AD decreases. According to the Classical Model, what...
Assume the economy is in long-run equilibrium and AD decreases. According to the Classical Model, what will happen to the equilibrium level of GDP and the Price Level?
Macroeconomics Schools of Thought In Class Assignment 1. Assume the economy is currently in long and...
Macroeconomics
Schools of Thought In Class Assignment 1. Assume the economy is currently in long and short run equilibrium. a. Suppose that the government in this economy goes to war. Holding everything else constant, what do you predict will happen to real GDP and the aggregate price level in the short run? What type of gap is created? Use the AS/AD model to illustrate. a. According to a Classical economist, how can the economy move back to its potential? Explain...
17. Consider the Keynesian model discussed in class. If Y>PAE, then the economy: a. Is in...
17. Consider the Keynesian model discussed in class. If Y>PAE, then the economy: a. Is in equilibrium and experiencing a contractionary gap b. Is in equilibrium and inventories are lower than planned Is in disequilibrium and experiencing an expansionary gap c. d. Is in disequilibrium and inventories are higher than planned 18. Consider the Keynesian model discussed in class. If the re is a contractionary gap, then the economy: a. Is in equilibrium and inventories are higher than planned b....
Figure: AD–AS Refer to Figure: AD–AS. Assume that the economy is in long-run equilibrium. If the...
Figure:
AD–AS
Refer to Figure: AD–AS. Assume that the economy
is in long-run equilibrium. If the Federal Reserve were to lower
the targeted federal funds rate we would most likely expect:
there will be a downward movement along the aggregate demand
curve AD1.
the aggregate demand curve will stay unchanged at
AD1.
the aggregate demand curve will shift to
AD3.
the aggregate demand curve will shift to
AD2.
LRAS Aggregate price level SRAS AD, AD AD, Y₂ YpY, Real GDP
plz emergency thanks 13. Suppose the economy is currently in long run macroeconomic equilibrium, with actual...
plz
emergency thanks
13. Suppose the economy is currently in long run macroeconomic equilibrium, with actual GDP equal to potential GDP. (a) Depict this situation using AD-AS, being sure to label all curves and axes. 5 points. The government invests significant resources in building new schools and universities. (b) Depict the effect on prices and output this will have on AD-AS model and the new short run equilibrium (You can use the same graph as in (a) as long as...
The figure below depicts the aggregate demand curve (AD) and the long-run aggregate supply curve (LRAS) for the United States. The economy is initially at long-run equilibrium, at point A.
The figure below depicts the aggregate demand curve (AD) and the long-run aggregate supply curve (LRAS) for the United States. The economy is initially at long-run equilibrium, at point A.One of the most contentious issues among economists involves the economy’s adjustment to long-run equilibrium. Some economists believe that adjustment can and should occur naturally. This group, the classical economists, stresses the importance of aggregate supply. Others see the return to long-run equilibrium as an adjustment that occurs unpredictably and often...
2. Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases money supply by 6%. a) Illust...
2. Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases money supply by 6%. a) Illustrate the short-run effects of the monetary policy by using aggregate demand-aggregate supply model. Be sure to indicate the direction of change in real GDP, the price level and the unemployment rate. b) Illustrate the long-run effects of the monetary policy by using aggregate demand-aggregate supply model....
Assume the U.S. economy is in both short-run and long-run equilibrium, as shown in the graph...
Assume the U.S. economy is in both short-run and long-run equilibrium, as shown in the graph below. Suppose the federal government increases the amount of spending on the military. either the new a. Show the effect on the short-run equilibrium as a result of increased government spending. Using the graph, dra AD curve or new AS curve resulting from this change in spending. Instructions: Use the tool provided 'New Curve' to plot the appropriate line. After placing the curve, click...
According to Keynesian economics, if there are unutilized resources in the economy and aggregate demand decreases
According to Keynesian economics, if there are unutilized resources in the economy and aggregate demand decreases 1) real GDP will rise and price level will fall. 2) real GDP will fall and price level will remain constant. 3) real GDP will rise and price level will remain constant. 4) real GDP will rise and price level will rise.
The accompanying graph illstrates an economy in long-run equilibrium which is denoted by point FiR Suppose...
The accompanying graph illstrates an economy in long-run equilibrium which is denoted by point FiR Suppose a new technology is discovered which increases productivity. In the graph, demonstrate how the economy moves to its new long-run equilibrium by shifting the appropriate curves and placing point ELR at the new long- run equilibrium. LRAS SRAS LR In the long run, the aggregate price level decreases and real GDP (aggregate output) AD increases. Real GDP
Assume the economy is in long-run equilibrium and AD decreases. According to the Classical Model, what will happen to the equilibrium level of GDP and the Price Level?
Macroeconomics
Schools of Thought In Class Assignment 1. Assume the economy is currently in long and short run equilibrium. a. Suppose that the government in this economy goes to war. Holding everything else constant, what do you predict will happen to real GDP and the aggregate price level in the short run? What type of gap is created? Use the AS/AD model to illustrate. a. According to a Classical economist, how can the economy move back to its potential? Explain...
17. Consider the Keynesian model discussed in class. If Y>PAE, then the economy: a. Is in equilibrium and experiencing a contractionary gap b. Is in equilibrium and inventories are lower than planned Is in disequilibrium and experiencing an expansionary gap c. d. Is in disequilibrium and inventories are higher than planned 18. Consider the Keynesian model discussed in class. If the re is a contractionary gap, then the economy: a. Is in equilibrium and inventories are higher than planned b....
Figure:
AD–AS
Refer to Figure: AD–AS. Assume that the economy
is in long-run equilibrium. If the Federal Reserve were to lower
the targeted federal funds rate we would most likely expect:
there will be a downward movement along the aggregate demand
curve AD1.
the aggregate demand curve will stay unchanged at
AD1.
the aggregate demand curve will shift to
AD3.
the aggregate demand curve will shift to
AD2.
LRAS Aggregate price level SRAS AD, AD AD, Y₂ YpY, Real GDP
plz
emergency thanks
13. Suppose the economy is currently in long run macroeconomic equilibrium, with actual GDP equal to potential GDP. (a) Depict this situation using AD-AS, being sure to label all curves and axes. 5 points. The government invests significant resources in building new schools and universities. (b) Depict the effect on prices and output this will have on AD-AS model and the new short run equilibrium (You can use the same graph as in (a) as long as...
2. Suppose the economy is in long-run equilibrium, with real GDP at $19 trillion and the unemployment rate at 5%. Now assume that the central bank unexpectedly decreases money supply by 6%. a) Illustrate the short-run effects of the monetary policy by using aggregate demand-aggregate supply model. Be sure to indicate the direction of change in real GDP, the price level and the unemployment rate. b) Illustrate the long-run effects of the monetary policy by using aggregate demand-aggregate supply model....
Assume the U.S. economy is in both short-run and long-run equilibrium, as shown in the graph below. Suppose the federal government increases the amount of spending on the military. either the new a. Show the effect on the short-run equilibrium as a result of increased government spending. Using the graph, dra AD curve or new AS curve resulting from this change in spending. Instructions: Use the tool provided 'New Curve' to plot the appropriate line. After placing the curve, click...
The accompanying graph illstrates an economy in long-run equilibrium which is denoted by point FiR Suppose a new technology is discovered which increases productivity. In the graph, demonstrate how the economy moves to its new long-run equilibrium by shifting the appropriate curves and placing point ELR at the new long- run equilibrium. LRAS SRAS LR In the long run, the aggregate price level decreases and real GDP (aggregate output) AD increases. Real GDP
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