Describe recession and expansion.
Explanation of Solution
When the economy is reach it peaks, the economic activities reach its heights. Then it begins to fall. In the period of recession, the economic activities go in a slow motion. This is because of the decreased employment, productivity, and money growth. However, the economy will survive the situation through the adoption of
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Chapter 12 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
- Recent data from the Bureau of Labor Statistics show that the average price level for consumers rose 5.4% over the past year. While some are expressing concern over rising inflation leading the economy to “overheat,” there is some evidence indicating that this is due to the reopening of the economy as producers adjust to rising demand for goods and services. Many of the goods with the largest price increases, like bacon or cars and trucks, cannot have their production ramped up as quickly as demand is increasing. Other industries are facing supply chain challenges, like shortages of truck drivers. These problems are most likely to be short term, so, as supply catches up with demand, we can expect to see prices return to normal. As evidence, after spiking to record highs in early summer, lumber prices have now fallen below their price at the start of the year. The reason for the dramatic price increase earlier in the year was a combination of reduced supply in 2019 and a surge in demand…arrow_forwardIf a firm believes that their relative price has changed, then they will increase their output, since their product is more valuable (in relative price terms). Thus, the output of firms will be Y = Y +x (P - EP) where alpha is the relative increase in work driven by an increase in expected price level Thirty percent of firms can adjust their prices ex-post. If a=1, and the current price level is $200, then draw the SRAS curve around the potential output of $10,000. Then, determine the increase in price above expectation if 40% of firms are sticky-price firms, flexible price firms respond with a=0.02 and Y rises by $2400.arrow_forwardYour Policy Brief team has modelled the effects of an investment in Research & Development (R&D) that leads to the invention of a new production method which makes more efficient use of renewable energy sources. This new production method can be disseminated throughout the economy, bringing down production costs for businesses, and enabling the economy to make more productive use of existing resources. This brings an expansion in the economy’s productive capacity. Illustrate the predicted effects of this innovation using an AD-AS diagram. Provide bullet points to explain what is happening in your diagram. As with all of your diagrams, be sure to indicate the original and new equilibrium points, and what happens to output and price level. To conclude your explanation, explain what the link between innovation and economic prosperity and wellbeing is.arrow_forward
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- Macropoland, a country that is a natural gas and oil importer, has a natural rate of unemployment (at the full employment level of GDP) that is about 4.5%, and the long run average rate of inflation over time has been about 2%. However, during the period 1973-1974, the country experienced an inflation rate of about 15% while simultaneously experiencing unemployment of nearly 13%.At the present time, Macropoland is experiencing very sluggish consumption and investment (a result of a fall in the housing market), and unemployment has again edged up to around 9%. Inflation is very low at 0.4%.Macropoland has just hired you as their economic advisor. You have a big job ahead of you. Using your knowledge of aggregate demand and aggregate supply, can you explain what happened in these two time periods?Develop a response that includes examples and evidence to support your ideas, and which clearly communicates the required message to your audience. Organize your response in a clear and logical…arrow_forward"The oil price run - up of 2007 - 08 was caused by strong demand confronting stagnating world production. Although the causes were different, the consequences for the economy appear to have been very similar to those observed in earlier episodes, with significant effects om overall consumption spending and purchases of domestic automobiles in particular. The experience of 2007 - 08 should thus be added to this list of recessions to which oil prices appear to have made a material contribution". Oil price shocks have an evident impact on the short run aggregate supply curve. With the help of a graph demonstrate how rising oil prices affect the SRAS and explain what other factors can cause this shift.arrow_forwardThe weighted average TT/US dollar selling rate depreciated marginally by 0.05 percent to US$1 = TT$6.7838 in August 2021 from US$1 = TT$6.7802 in October 2020.” Create a supply and demand graph with the above information.arrow_forward
- Which of the following is a correct statement about the difference between chain-weighted and fixed-weight real GDP growth rates? a) Chain-weighted growth rates are more accurate if prices are rising slowly. Fixed-weight growth rates are more accurate when prices are rising rapidly. b) Chain-weighted growth rates depend on the choice of base year. Fixed-weight growth rates do not. c) Chain-weighted growth rates tend to be larger, the earlier is the base year. This is not the case for fixed-weight growth rates. d) Fixed-weighted growth rates tend to decline when the base year is updated. Chain-weighted growth rates do not.arrow_forwardA futures market trades contracts on the growth rate for nominal GDP. The contract pays $X to the buyer, where X is 100 times the growth rate in nominal GDP from last year to this year. For example, if nominal GDP grows by 1% over last year, the contract pays $100 (1 x 100). Nominal GDP last year was $28,909 billion. Contracts on the futures markets are currently selling for $513. What is the market's prediction for nominal GDP this year? Put your answer in billions. You may round to two decimal places.arrow_forwardWhen a recession begins and ends is determined by the Business Cycle Dating Committee (chaired by our textbook author Robert Hall) within the National Bureau of Economic Research (NBER). The NBER concluded that the unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this current pandemic-driven episode in the nation as a recession. True Falsearrow_forward
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