In the standard AS-AD framework, after a positive one-period O for all times T > t), the inflation shock at time t (that is, ō, economy will move to a new equilibrium with = Tt+1 - Tt = 0 because %3D the AS curve immediately shifts such that the AS and AD curves intersect at Y = 0. Any shock is offset completely by an opposing inflation shock. the AD curve shifts each period. Changes in the rate of inflation are matched by changes in the demand parameter ā. the AS curve gradually shifts in the direction of Y = 0. Changes in inflation affect the intercept of the AS curve. the AD curve adjusts over time. Changes in expected inflation move the intercept term of the AD curve. O the AS curve never shifts in response to shocks in the economy.

In the standard AS-AD framework, after a positive one-period O for all times T > t), the inflation shock at time t (that is, ō, economy will move to a new equilibrium with = Tt+1 - Tt = 0 because %3D the AS curve immediately shifts such that the AS and AD curves intersect at Y = 0. Any shock is offset completely by an opposing inflation shock. the AD curve shifts each period. Changes in the rate of inflation are matched by changes in the demand parameter ā. the AS curve gradually shifts in the direction of Y = 0. Changes in inflation affect the intercept of the AS curve. the AD curve adjusts over time. Changes in expected inflation move the intercept term of the AD curve. O the AS curve never shifts in response to shocks in the economy.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, And Sources Of Business Cycles

Section: Chapter Questions

Problem 9E

See similar textbooks

Similar questions

Please no written by hand solution Consider a scenario of a closed economy in the short run where price level is fixed. Assume that bothtaxes and money supply increase in a way that keep output constant in equilibrium (suppose that themarginal propensity to consume is less than one). Which of the following may result from the policychange?a) It will lead to an increase in investment but a decrease in consumption.b) It will result in an increase in investment but a decrease in government spending.c) It will lead to an increase in investment and private saving.d) It will decrease investment but increase in public saving.
How does a credible nominal anchor help improve theeconomic outcomes that result from a positive aggregatedemand shock? How does a credible nominal anchorhelp if a negative aggregate supply shock occurs? Usegraphs of aggregate supply and demand to demonstrate.
Consider the AD/AS model below with a constant rate of inflation. No exogenous AD or AS shocks are occurring. Price Level P3 2 Po 0 FIGURE 29-1 Y" E3 E2 E1 Eo Real GDP AS3 AS2 AS1 ASO AD3 AD2 AD1 ADO Select one: O a an annual shift upward of the AS curve by 3%. b. an annual increase in the inflation rate of 3%. Oc. an annual shift upward of the AD curve by 3%. d. an annual increase in the equilibrium price level of 3%. Oe. Not applicable. The diagram shows the price level, not the inflation Refer to Figure 29-1. A constant rate of inflation of 3% is portrayed in an AD/AS diagram like this one as
Illustrate and interpretthe short-run and longrun effects of temporary and permanentsupply shocks
Relating DSGE and AS/AD for a shock to government purchases: Consider thecomplete dynamic response of the economy to a temporary rise in governmentpurchases in the AS/AD framework.(a) Draw the AS/AD graph associated with this shock.
1 1A) Using the static AD/AS model to explain how the job keeper (wage subsidy) policy worked to sustain the economy even though unemployment rate in Australia had increased during Covid-19 period? 1B) justify in detail the difference between U shaped recoveries and V shaped recoveries?
The following economic shock has occurred in this economy, ceteris paribus: Marginal propensity to import has increased Figure 1 W,J W1 E1 J1 Y1 Y (a) Represent this economic shock by drawing an appropriate new function in Figure 1. Mark w2 if the appropriate new function is a withdrawal function, or J2 if the appropriate new function is an injection function. (b) Indicate the following after the occurrence of the above economic shock in Figure 1: (i) the new equilibrium point as point E2, and (ii) the level of new equilibrium output as Y2
Price level AD AD Real GDP FIGURE 23-4 Refer to Figure 23-4. Suppose the Canadian economy is initially in equilibrium at point A. An unexpected shock then shifts both the AD and the AS curves as shown and results in a new equilibrium represented by point B. Which of the following events could cause such a shock? Select one: O A. a decrease in the world price of oil O B. an increase in the net tax rate O C. an increase in factor prices O D. a decrease in firms' desired investment experiditures a decrease in labour productivity
Suppose, initially the Australian economy is atfull employment(in other words the economy is atthe potentialGDP). Using AD-AS model, explain how would each of the following events aectthe economy both in theimmediate and in the long term.a) A slowdown in China’s economic growth due to the sub-prime crisis in the US.b) Union wage settlements push the wage rate up.c) An increase in consumer confidence.
An economy has: R = 10 +.ly, C= 14 + 9YD, G= 25, I = 75 -r, NX = 30 -.06y - .5p, MD = 25y-r, MS = 15 and ASo = 2p. A negative AS shock occurs: AS, = 2p – 60. a. Provide a diagram showing AS/AD to illustrate how real GDP and the price level are affected by this AS shock. A government can offset this AS shock by increasing the money supply OR increasing government spending. They won't do both. Calculate level of money supply MS= b. and the level of government spending G = that would be necessary to offset this AS shock.
Consider a Keynesian business cycle theory that combines the IS-LM model with the assumption that investors become infected with optimism. Does the theory explain observed cyclical behavior of each of the following variables? Еmployrment O A. is procydlical in the data, but is countercydlical in the model. Hence the model does not match this business cycle fact. O B. is countercyclical in the data, but is procyclical in the model. Hence the model does not match this business cycle fact. OC. is countercyclical in the data, and is countercyclical in the model. Hence the model matches this business cycle fact. OD. is procyclical in the data, and is procyclical in the model. Hence the model matches this business cycle fact. Average labor productivity O A. is procyclical in the data, but is countercyclical in the model. Hence the model does not match this business cycle fact. OB. is countercyclical in the data, but is procyclical in the model. Hence the model does not match this business…
You are hired by the Council of Economic Advisors (CEA) as an economic consultant.The chairperson of the CEA tells you that she believes the current unemployment rate istoo high. The unemployment rate can be reduced if aggregate output increases. She wantsto know what policy to pursue to increase aggregate output by 300 billion TL. The bestestimate she has for the MPC is 0.8. Which of the following policies should yourecommend?a) Increase government purchases by 75 billion TL.b) Reduce taxes by 75 billion TL.c) Reduce taxes by 75 billion TL and to increase government purchases by 75 billion TL.d) Reduce the budget deficit by 300 billion TL