How is long-term growth illustrated in an AD/AS model? Draw a graph of the AD/AS model and show the effect of long-term growth from period 1 to period 2. Include the effect of a resulting expansion of the money supply by the Fed.
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- Assume that a decrease in investment expenditures drives the economy falls below full employment. What policy should the Fed take to correct the problem? Use the AD/AS model to show the policy action.The imaginary country of Harris Island has the aggregate supply and aggregate demand curves as Table 24.3 shows. a. Identify the (i) equilibrium basing from the AD/AS diagram attached. b. Would you expect unemployment in this economy to be relatively high or low? c. Would you expect concern about inflation in this economy to be relatively high or low? d. Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Identify the new aggregate equilibrium. e. How will the shift in AD affect the original output, price level, and employment?Assume that the Fed engages in a policy action that drives the economy above full employment. Use the AD/AS model to show the effects of this policy in both the short-run and in the long-run.
- The AD/AS model is static. It shows a snapshot of the economy at a given point in time. Both economic growth and inflation are dynamic phenomena. Suppose economic growth is 3% per year and aggregate demand is growing at the same rate. What does the AD/AS model say the inflation rate should be?In the AD/AS model, why does any given AD shock result in a different price and output effects on short-run macroeconomic equilibrium?Create a graph that shows where Mexico currently is on the business cycle. Be sure to include an AD-AS Model graph that shows if the economy is currently experiencing a recessionary gap, expansionary gap, or long run equilibrium.
- Draw a macro equilibrium using AD/AS. Clearly label all important points on your graph. Show how an expansionary Fiscal Policy affects the equilibrium price level and GDP. What can be said about the trade off between inflation and unemployment in this model?Review the problem shown in the Work It Out titled "Interpreting the AD/AS Model." Like the information provided in that feature, Table 24.2 shows information on aggregate supply, aggregate demand, and the price level for the imaginary country of Xurbia. Price Level AD AS 110 700 600 120 690 640 130 680 680 140 670 720 150 660 740 160 650 760 170 640 770 Table24.2 Price Level: AD/AS Plot the AD/AS diagram from the data shown. Identify the equilibrium. Imagine that, as a result of a government tax cut, aggregate demand becomes higher by 50 at every price level. Identify the new equilibrium. How will the new equilibrium alter output? How will it alter the price level? What do you think will happen to employment?Use the AD/AS model to explain the likely short run impacts on US GDP and the aggregate price level. What do you anticipate will happen to US consumption expenditure and US employment?
- Assume the Fed buys bonds. Illustrate what you anticipate would happen to the Money Market graph, the Investment graph, and the AD/AS graph.Suppose that consumers become pessimistic about the future health of the economy. What will happen to aggregate demand and to output? Show this using AD/AS graphs. What might the president and Congress have to do to keep output stable?The table below shows information on aggregate supply, aggregate demand and the price level for the imaginary country of Xurbia. Price Level AD AS 110 700 600 120 690 640 130 680 680 140 670 720 150 660 740 160 650 760 170 640 770 Plot the AD/AS diagram from the data shown (Don't have to show graph but do draw it to help you answer the questions). a. Identify the equilibrium. b. Imagine that as a result of a government tax cut, aggregate demand becomes higher by 50 at every price level. Identify the new equilibrium. c. How will the new equilibrium alter output? How will it alter the price level? What do you think will happen to employment?