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- Q22) What is the Phillips curve consistent with? Option the AD shifting along a stationary SRAS the AD shifting along the LRAS the LRAS shifting along a stationary AD the SRAS shifting along a stationary AD1.) The Keynesian AD-AS model describes what happens with price levels when aggregate demand increases. Could you find any evidence from the last ten-fifteen years that might support AD-AS model descriptions of demand-pull inflation, cost-push inflation, and recession? For example, you could find data on the GDP’s of any two countries from 2000 to 2017 to support your findings. 2.) In macroeconomics, the immediate short run is known as a length of time when both input prices and output prices are fixed. In the short-run, input prices are fixed but output prices are variable. In the long run, input prices and output prices can vary. What happens in the immediate short-run when AD falls from AD to AD2 to the price level and output? What happens in the short-run when AD falls from AD to AD2 to the price level and output? What will happen in the long-run?2. The Phillips curve in the short run and long run In the year 2020, aggregate demand and aggregate supply in the fictional country of Demet are represented by the curves AD2020 and AS on the following graph. Suppose the natural level of output in this economy is $6 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. 100 107 LRAS AS 106 Outcome C 102 AD₂ 101 100 2 14 16 10 OUTPUT (Trillions of dollars) Economists have forecast that if the government does nothing and the economy continues to grow at the current rate, aggregate demand in 2021 will be given by the ADA curve, resulting in the outcome illustrated by point A. If the government pursues an expansionary policy, aggregate demand in 2021 will be given by the ADB curve, resulting in the outcome illustrated by point B. The following table gives projections for the unemployment rates that would occur at point A and point B. Consider what the…
- a) Are the effects of an increase in aggregate demand in the AD-AS model consistent with the Phillips curve? Explain. b. Discuss the factors determining the slope of the short-run Phillips curve. Is the linear shape appropriate? Why or why not?11) During the 1970s and 1980s, macroeconomists were busy integrating the insights of which of the following into their ideas about the economy? A) real business cycle theory B) Keynesian theory C) supply side economics D) classical macroeconomics E) none of the above 12) Which of the following events led to the crisis in macroeconomics and to the development of rational expectations theory? A) the Great Depression B) the stock market crash of 1987 C) the stock market speculative bubble of the late 1990s D) stagflation in the 1970s E) large budget deficits in the 1980s 13) Milton Friedman attributed the Great Depression primarily to A) the government's failure to respond to an increase in the budget deficit. B) a reduction in the money supply. C) economists' and policy-makers' failure to acknowledge their limited knowledge. D) the failure of wages to rise. E) inaccurate expectations by consumers and firms. 14) Which…In Figure 2 above, what are the factors that may cause the aggregate demand to shift from AD to AD1? What is the difference between demand-pull inflation, cost-push inflation and recession?
- Assume that a country's economy is in equilibrium. a) () Using a correctly labeled AD/AS graph, show how an increase in the price of gasoline, an important input of production, will affect the following in the short run. (i) Real output :- (ii) Price level-Using a correctly labeled graph, show the same effect on the Phillips curve. () Central bank of the country responds to the higher price of oil by increasing the money supply. (i ) ()Explain the process by which the increase in the money supply will affect the aggregate demand in the short run. (ii) (Indicate on the AD/AS graph, how the increase in the money supply will affect real output and the price level. d) () Now assume that instead of using monetary policy in response to the gasoline price increase, the government reduces business taxes, which results in lower production costs. Using a new correctly labeled graph, show the effect of the reduction in business taxes on the following. (i) () Real output - (ii) () Price levele) (…5. Consider the following changes in the sticky-wage model. a. Suppose labor contracts are fully indexed for inflation so that as inflation changes. That is, the nominal wage is to be adjusted to fully compensate for changes in the consumer price index. How does full indexation alter the AS curve in this model? b. Suppose that now indexation is only partial. That is, for every increase in the CPI, the nominal wage rises, but by a smaller percentage. How does partial indexation alter the AS curve in this model?Explain elements of a Dynamic Model of Economic Fluctuations: 1) Output: The Demand for Goods and Services; 2) The Real Interest Rate: The Fisher Equation; 3) Inflation: The Phillips Curve; 4) Expected Inflation: Adaptive Expectations; 5) The Nominal Interest Rate: The Monetary-Policy Rule. This is question from Macroeconomic field, from the Gregory Mankiw book Principles of Macroeconomics
- The following graphs show the state of an economy that is currently in Tong-run equilibrium. The first graph shows the aggregate demănd (AD) and long-run aggregate supply (LRAS) curves. The second shows the long-run and short-run Phìllips curves (LRPC and SRPC). LRAS AD LRAS AD 12 15 18 OUTPUT (Trillions af dollars) LRPC SRPC LRPC SRPC 10 12 UNEMPLOYMENT RATE (Percent) Which of the following statements are true based on these graphs? Check all that apply. - The current quantity of output is greater than potential output. The natural level of output is $9 trillion. - The unemployment rate is currently 6% higher than the natural rate of unemployment. Suppose the central bank of the economy increases the money supply. Show the long-run effects of this policy on both of the graphs by shifting the appropriate curves. in the The long-run effect of the central bank's policy is inflation rate, real GDP. in the unemployment rate, and in INFLATION RATE5. Consider the Phillips curve πt = πt-1 – 0.5(ut – 0.01). a) What is the natural rate of unemployment? Graph the short-run and long-run relationships between inflation and unemployment? b) How much unemployment is necessary to reduce inflation by 3%? Compute the sacrifice ratio. Show your work. c) Do flexible exchange rates permit a country to pick its own unemployment-inflation trade-off target?1. Aggregate demand, aggregate supply, and the Phillips curve In the year 2020, aggregate demand and aggregate supply in the fictional country of Bartak are represented by the curves AD2020 and AS on the following graph. The price level is 102. The graph also shows two possible outcomes for 2021. The first potential aggregate demand curve is given by the ADA curve, resulting in the outcome illustrated by point A. The second potential aggregate demand curve is given by the ADB curve, resulting in the outcome illustrated by point B. PRICE LEVEL 108 107 106 105 104 103 102 + 101- AS ADB AD2020 ADA 100 + 0 2 4 6 8 10 12 14 16 OUTPUT (Trillions of dollars) Suppose the unemployment rate is 6% under one of these two outcomes and 3% under the other. Based on the previous graph, you would expect to be associated with the lower unemployment rate (3%). If aggregate demand is high in 2021, and the economy is at outcome B, the inflation rate between 2020 and 2021 is Based on your answers to the…