"In period 0 (before the shock), draw the recording table where you keep track of inflation expectations, shocks, interest rates, SRO and actual inflation for each period. Draw also the diagram corresponding to a situation where there are no AD shocks (a=0), the Fed sets the real interest rate equal to the MPK (R=r), and there are no inflation shocks either (o=0). Label the initial equilibrium as point A in the diagram, both in the top and bottom parts of the diagram. Which of the statements below is correct?" SRO will be equal to zero and inflation equal to the target rate. SRO will be positive and inflation equal to the target rate. SRO will be positive and inflation equal to the previous period's inflation rate. SRO will be negative and inflation equal to the previous period's inflation rate.

"In period 0 (before the shock), draw the recording table where you keep track of inflation expectations, shocks, interest rates, SRO and actual inflation for each period. Draw also the diagram corresponding to a situation where there are no AD shocks (a=0), the Fed sets the real interest rate equal to the MPK (R=r), and there are no inflation shocks either (o=0). Label the initial equilibrium as point A in the diagram, both in the top and bottom parts of the diagram. Which of the statements below is correct?" SRO will be equal to zero and inflation equal to the target rate. SRO will be positive and inflation equal to the target rate. SRO will be positive and inflation equal to the previous period's inflation rate. SRO will be negative and inflation equal to the previous period's inflation rate.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: The Short-run Trade-off Between Inflation And Unemployment

Section: Chapter Questions

Problem 8PA

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Assume, while an economy is in long-run equilibrium, an adverse supply shock occured, suchas energy prices have incrased. The central bank decides to accommodate this shock and restores theequilibrium quickly. What would be the effect of this policy action on inflation? Explain and illustratewith the help of an AD-AS diagram.
D Question 7 Refer to the figure. In the figure, assume the initial real growth rate of the economy is 3 percent when a negative aggregate demand shock shifts the AD curve from AD, to AD3. As a result of the Fed's policy response, the AD curve shifts to AD, in the short run. Which of the following is TRUE about the Fed's policy response? Inflation rate, LRAS SRAS ADS AD4 ► AD; AD2 AD; 3% Real growth O The Fed provided just the right amount of response to the shock. The Fed responded too much to the shock. O The Fed was too fast in responding to the shock. O The Fed responded too little to the shock.
Refer to the given figure. Inflation T 000 LRAS Y' B U AD Output This economy has a short-term equilibrium at point A. In response to gradually falling inflation, this economy will eventually move from its short-run equilibrium to its long-run equilibrium. Graphically, this would be seen as SRAS aggregate demand shifting rightward. aggregate demand shifting leftward. O short-run aggregate supply shifting downward. long-run aggregate supply shifting leftward.
Question 8 Refer to the figure. In the figure, assume the initial real growth rate of the economy is 3% when a positive aggregate demand shock shifts the AD curve from AD, to AD5. As a result of the Fed's policy response, the AD curve shifts to AD, in the short run. Which of the following is TRUE about the Fed's policy response? Inflation LRAS rate, SRAS *ADS AD4 ► AD; AD2 AD; 3% Real growth The Fed responded too little to the shock. The Fed was too fast in responding to the shock. O The Fed provided just the right amount of response to the shock. The Fed responded too much to the shock.
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