3. Assume the aggregate demand curve is given by Y 11.5 – 0.6n and the aggregate supply curve by t = 2.5 + 0.6(Y – 8). - a. Find the short-run equilibrium level of output and inflation and plot your results in a graph. b. Is the short-run equilibrium you have found in (a) also a long-run equilibrium? If not, how would the self-correcting mechanism ensure that long-run equilibrium is attained? Answer this question with the help of a graph.

3. Assume the aggregate demand curve is given by Y 11.5 – 0.6n and the aggregate supply curve by t = 2.5 + 0.6(Y – 8). - a. Find the short-run equilibrium level of output and inflation and plot your results in a graph. b. Is the short-run equilibrium you have found in (a) also a long-run equilibrium? If not, how would the self-correcting mechanism ensure that long-run equilibrium is attained? Answer this question with the help of a graph.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 3SCQ: The short run aggregate supply curve was constructed assuming that as the price of outputs...

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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.
Refer to the figure below. The aggregate supply curve shifting from AS1 to AS2 will cause Price level РА P2 P₁ Po — O cost-push inflation Ohyperinflation deflation A O demand-pull inflation B Y2 Y₁ Yo Aggregate output AS2 AS₁ ASO AD₁ Y
3)Show and explain the effects of an increase in aggregate demand in the long-run and short-run by using AD–AScurves.2)Show and explain by using a graph, what will happen to the price level and real GDP if the quantity of moneyincreases and the increase is not anticipated; that is, the price level is not expected to change.1)By using aggregate demand (AD) and aggregate supply (AS) curves, show and explain the effects of ananticipated increase in money supply on macroeconomic equilibrium according to Rational ExpectationsHypothesis.
Illustrate and interpretthe short-run and longrun effects of temporary and permanentsupply shocks
2. Show a AD-AS graph inflation in the short run and the shift in the SAS necessary to eliminate it.
10. Which of the following are reasons why the short-run Aggregate Supply curve shown in the right-hand diagrams may be vertical? a) The economy at this level of real GDP would be operating beyond the full-employmetn level. b) Inflationary expectations have set-in so, the owners of resources are acting on these inflationary expectations and insisting on higher resource prices in anticipation of future products price inflation. c) Short-run Aggregate Suply in the Classical model is always constant. d) All the above e) Only (a) and (b) are true. f) None of the above.
1. Imagine an economy, where the SRAS in terms of inflation is given by II=5+Y, where Y is output. Imagine that the long run AS curve is given by Y=2. (25 marks) a) Give the equation of the AD curve (you can take liberties), if we assume that initially, the economy is at its long-run equilibrium. Justify. b) Imagine that your chosen AD curve's intercept goes up by one unit due to an expansionary monetary policy. What will be the new final equilibrium after this change? Justify. c) What will be the equilibrium after two periods of adjustment? Justify. d) Assume that before all the changes in the economy, in the initial, long-run equilibrium, the interest rate was 4 percent. Give an IS and an LM curve that are compatible with this initial equilibrium. Justify. e) What are the IS and LM curves going to be at the very end of the adjustment process, i.e., in the new long run equilibrium? Justify.
Consider a closed economy that begins with her long run equilibrium.Recently, households become more pessimistic. They tend to save more to getprepared.Adopt the sticky-wage model of the short run aggregate supply to explain theshort run effects of this shock. Also, explain the gradual long run adjustmentsover time using the sticky-wage model of the short run aggregate supply. Assume the policymakers do not accommodate the shock.
Question 47 Exhibit: Supply Shock A. O C. O B. LRAS O D. D C A E Y Y Assume that the economy is at point E. With no further shocks or policy moves, the economy in the long run will be at point: SRAS₁ SRASO SRAS₂ AD
Refer to the accompanying figure. LRAS Inflation a A 0, y' Output O O An economy is currently in long-run equilibrium at point B, at an inflation rate of m, which is too high to sustain economic growth. If an anti-inflationary policy is enacted, the economy will be in short-run equilibrium at point creating gap. O SRAS O SRAS AD' AD A; an expansionary A; a recessionary D; a recessionary D; an expansionary
Based on the given figure, the economy is initially in long-run equilibrium at point A. If there is a favorable supply shock that increases potential output and shifts the long- run aggregate supply curve from LRAS to LRAS', then there is initially gap and the short-run aggregate supply curve will Inflation P 24 A B LRAS LRAS D E Y* Output Y' SRAS' SRAS SRAS AD a. an expansionary: eventually shift to SRAS" b. an expansionary; eventually shift to SRAS' c. a recessionary; eventually shift to SRAS' d. a recessionary; eventually shift to SRAS"
on Indicate whether the following factor will affect aggregate demand (AD) or aggregate supply (AS) and whether the effect would be an increase or a decrease. Then indicate what will happen to the price level and the level of Real GDP and what type of equilibrium will result assuming that the economy is initially in long-run equilibrium. a) A decrease in the nominal wage rate. b) A decrease in exports. c) A decrease in the exchange rate. d) The discovery of vast new oil field in AD no effect decrease + increase no effect AS increase no effect increase increase decrease decrease decrease Real GDP increase decrease increase increase Equilibrium recessionary gap ⇒ inflationary gap inflationary gap inflationary gap AP ? Q Fir