4 8. Problems and Applications Q8As described in the chapter, the Federal Reserve in 2008 faced a decrease in aggregate demand caused by the housing and financial crises and adecrease in short-run aggregate supply caused by rising commodity prices.Starting from a long-run equilibrium, illustrate the effects of these two changes on aggregate supply and aggregate demand on the following graph.Then, on the subsequent graph, indicate what happens on a Phillips-curve diagram.LRÅSAggregate SupplyAggregate DemandAggregate SupplyALRASAggregete DemandLong-Run EquilibriumQuantity of OutputPrice Level LRPCSRPCLRPCRPC,Long-Run EquilbriumSRPC,Unemployment RateWhich of the following is true as a result of the two changes in aggregate demand and aggregate supply? (Note: Do not consider the magnitudes ofthe shifts given on the preceding graphs. Think only about the directions of the shifts.) Check all that apply.O The effect on the price level will be ambiguouUs.Unemployment will rise.The infiation rate will rise.O The effect on equilibrium output will be ambiguous.Which of the following is true as a result of the two changes in aggregate demand and aggregate supply? (Note: Do not consider the magnitudes ofthe shifts given on the preceding graphs. Think only about the directions of the shifts.) Check all that apply.O The effect on the price level will be ambiguous.O Unemployment will rise.O The inflation rate will rise.O The effect on equilibrium output will be ambiguous.Suppose the Fed responds quickly to these shocks and adjusts monetary policy to keep unemployment and output at their natural rates.On each of the previous graphs, adjust the curve or curves (if necessary) to show the long-run results, and place a black polnt (plus symbol) on thepoint representing the new long-run equilibrium.True or False: In these situations, the Fed always takes the course of action you selected.O TrueO False

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As described in the chapter, the Federal Reserve in 2008 faced a decrease in aggregate demand caused by the housing and financial crises and a decrease in short-run aggregate supply caused by rising commodity prices. Starting from a long-run equilibrium, illustrate the effects of these two changes on aggregate supply and aggregate demand on the following graph. Then, on the subsequent graph, indicate what happens on a Philips-curve diagram. LRAS Aggregate Supply Aggregate Demand Aggregate Supply LRAS Aggregete Demand Long-Run Equilibrium Quantity of Output Price Level

As described in the chapter, the Federal Reserve in 2008 faced a decrease in aggregate demand caused by the housing and financial crises and a decrease in short-run aggregate supply caused by rising commodity prices. Starting from a long-run equilibrium, illustrate the effects of these two changes on aggregate supply and aggregate demand on the following graph. Then, on the subsequent graph, indicate what happens on a Philips-curve diagram. LRAS Aggregate Supply Aggregate Demand Aggregate Supply LRAS Aggregete Demand Long-Run Equilibrium Quantity of Output Price Level

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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8. Problems and Applications Q8 As described in the chapter, the Federal Reserve in 2008 faced a decrease in aggregate demand caused by the housing and financial crises and a decrease in short-run aggregate supply caused by rising commodity prices. Starting from a long-run equilibrium, illustrate the effects of these two changes on aggregate supply and aggregate demand on the following graph. Then on the subsequent graph, indicate what happens in a Phillips-curve diagram. Price Level LRAS Aggregate Supply * Aggregate Demand Quantity of Output Aggregate Demand Aggregate Supply LRAS Long-Run Equilibrium (?)
2. The Phillips curve in the short run and long run In the year 2020, aggregate demand and aggregate supply in the fictional country of Demet are represented by the curves AD2020 and AS on the following graph. Suppose the natural level of output in this economy is $6 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. 100 107 LRAS AS 106 Outcome C 102 AD₂ 101 100 2 14 16 10 OUTPUT (Trillions of dollars) Economists have forecast that if the government does nothing and the economy continues to grow at the current rate, aggregate demand in 2021 will be given by the ADA curve, resulting in the outcome illustrated by point A. If the government pursues an expansionary policy, aggregate demand in 2021 will be given by the ADB curve, resulting in the outcome illustrated by point B. The following table gives projections for the unemployment rates that would occur at point A and point B. Consider what the…
1 . Aggregate demand, aggregate supply, and the Phillips curve In the year 2023, aggregate demand and aggregate supply in the fictional country of Drooble are represented by the curves AD2023 AD 2023 and AS on the following graph. OPTIONS: Blank 1: Outcome A/Outcome B Blank 2: 2.94%, 0.98%, 5%, 3% Blank 3: movement along/shift Blank 4/5: a decrease/an increase
2. The Phillips curve in the short run and long run In the year 2023, aggregate demand and aggregate supply in the fictional country of Gurder are represented by the curves AD2023 and AS on the following graph. Suppose the natural rate of output in this economy is $6 trillion. NOTE: OPTIONS FOR BLANKS ARE: 1. The short-run Phillips curve is ______ (a vertical OR a downward sloping OR an upward sloping) 2. Because output at point C is _____ (less than OR greater than OR equal to) the natural rate of output, the unemployment rate associated with outcome C is _____ (less than OR greater than OR equal to) 3. This line is _____ (a vertical OR a downward sloping OR an upward sloping)
As described in the chapter, the Federal Reserve in 2008 faced a decrease in aggregate demand caused by the housing and financial crises and a decrease in short-run aggregate supply caused by rising commodity prices. 1. Starting from a long-run equilibrium, illustrate the effects of these two changes on aggregate supply and aggregate demand on the following graph. Then, on the subsequent graph, indicate what happens on a Phillips-curve diagram. (Please use the images attached.) 2. Which of the following is true as a result of the two changes in aggregate demand and aggregate supply? (Note: Do not consider the magnitudes of the shifts given on the preceding graphs. Think only about the directions of the shifts.) Check all that apply. -Equilibrium output will rise. -The price level will fall. -Unemployment will rise. -The effect on the inflation rate will be ambiguous.
What is the effect of an increase in aggregate demand on the short-run Phillips curve? When aggregate demand increases, _______. A. the short-run Phillips curve shifts upward B. the short-run Phillips curve shifts downward C. a movement occurs upward along the short-run Phillips curve D. a movement occurs downward along the short-run Phillips curve
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.
The following graphs show the state of an economy that is currently in Tong-run equilibrium. The first graph shows the aggregate demănd (AD) and long-run aggregate supply (LRAS) curves. The second shows the long-run and short-run Phìllips curves (LRPC and SRPC). LRAS AD LRAS AD 12 15 18 OUTPUT (Trillions af dollars) LRPC SRPC LRPC SRPC 10 12 UNEMPLOYMENT RATE (Percent) Which of the following statements are true based on these graphs? Check all that apply. - The current quantity of output is greater than potential output. The natural level of output is $9 trillion. - The unemployment rate is currently 6% higher than the natural rate of unemployment. Suppose the central bank of the economy increases the money supply. Show the long-run effects of this policy on both of the graphs by shifting the appropriate curves. in the The long-run effect of the central bank's policy is inflation rate, real GDP. in the unemployment rate, and in INFLATION RATE
7:29 AA A apclassroom.collegeboard.org 1 of 1 ☺ 15:00 Assume that a country's economy is in a short-run equilibrium and the actual unemployment rate is lower than the natural rate of unemployment. a. Using a correctly labeled graph of the long-run aggregate supply curve, short-run aggregate supply curve, and aggregate demand curve, show each of the following. i. Current price level, labeled PL1, and current output level, labeled Y1 ii. The full-employment output level, labeled YF. b. What open-market operation can the country's central bank use to move the economy toward its long-run equilibrium? c. Use a correctly labeled money-market graph to show how the country's central bank action to move the economy toward its long-run equilibrium affects the equilibrium nominal interest rate in the short run. d. Based on the interest rate change from part (c), will each of the following increase, decrease remain the same in the short run? i. Real output. Explain. Submit
14. In the accompanying diagram, the economy is in long- run macroeconomic equilibrium at point E when an oil shock shifts the short-run aggregate supply curve to SRAS2. Based on the diagram, answer the following questions. LRAS Aggregate price level SRAS2 SRAS1 E1 P1 .. AD1 Y1 Real GDP a. How do the aggregate price level and aggregate output change in the short run as a result of the oil shock? What is this phenomenon known as? b. What fiscal or monetary policies can the govern- ment use to address the effects of the supply shock? Use a diagram that shows the effect of policies cho- sen to address the change in real GDP. Use another diagram to show the effect of policies chosen to address the change in the aggregate price level. c. Why do supply shocks present a dilemma for govern ment policy makers?
1. Aggregate demand, aggregate supply, and the Phillips curve In the year 2023, aggregate demand and aggregate supply in the fictional country of Gizmet are represented by the curves AD2023 and AS on the following graph. The price level is 102. The graph also shows two possible outcomes for 2024. The first potential aggregate demand curve is given by the ADA curve, resulting in the outcome illustrated by point A. The second potential aggregate demand curve is given by the ADB curve, resulting in the outcome illustrated by point B. PRICE LEVEL 108 107 106 106 104 103 102 101 100 0 AD 2023 2 B AS ADB ADA 4 6 8 10 OUTPUT (Trillions of dollars) 12 14 16 Suppose the unemployment rate is 7% under one of these two outcomes and 5% under the other. Based on the previous graph, you would expect to be associated with the higher unemployment rate (7%).
“Households decide to save a larger share of their income will shift aggregatedemand curve upward because higher saving will boost investment which inturn increase the demand for investment goods.” Do you agree with thestatement? Explain your choice. e. Graphically derive short run Phillips curve with the help of aggregate demand and supply model.