By using graphs, show and explain each of the following events as either leading to an increase or a decrease in the equilibrium interest rate? a)A decrease in the price level b)An increase in the discount rate c)A decrease in the level of aggregate output
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By using graphs, show and explain each of the following events as either leading to an increase or a decrease in the equilibrium interest rate?
a)A decrease in the price level
b)An increase in the discount rate
c)A decrease in the level of
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- The aggregate demand curve portrays the relationship between price level and real GDP. What are the three reasons this relationship is a negative or inverse relationship? Provide brief illustrations of each.Explain why during the short run, an increase in the price of oil will cause an increase in the interest rate.Use the following graph to answer the following questions. Line Y Price level (P) 100 80 B Line Z Line X2 Line X1 Real GDP (3) If point A occurs chronologically before point B, then this graph could represent a decrease in aggregate demand with a decrease in long-run and short-run aggregate supply. a decrease in aggregate demand with constant long-run and short-run aggregate supply. constant aggregate demand with a decline in long-run aggregate supply. an increase in aggregate demand with constant long-run and short-run aggregate supply. constant aggregate demand with a decline in short-run aggregate supply.
- Similar to how the quantity demanded for a good depends on its price, the quantity of money demanded depends on the cost of holding money, or the nominal interest rate (i). In addition to this, the demand for real money balances is also a function of income (Y). Using all of this information, suppose the demand for real money balances takes on the following functional form: (M/P)dd=500 + 2Y – 9i The Fisher equation relates the nominal interest rate to the real interest rate (r) and the expected rate of inflation (Eπ) when examining ex-ante (based on forecasts or 'before the event') effects. The equation ( (M/P)dd = 500 + 2Y – 9(Eπ – r)/(M/P)dd = 500 + 2Y – 9(r – Eπ) / (M/P)dd = 500 + 2Y + 9(r + Eπ) / (M/P)dd = 500 + 2Y – 9(r + Eπ) ) is equivalent to the function given for the demand for real money balances. Suppose the central bank announces that it will increase the money supply in the future, but it does not change the money supply today. Complete the following…Aggregate Supply curve shows the relationship between the price level and the real GDP supplied in an economy. Under what circumstances will the AS curve have a flat segment? When an economy has a vertical AS curve? The AS curve is upward sloping in the intermediate region between the horizontal and the vertical segments. What kind of macroeconomic conditions give rise to the upward sloping range?Question 3. Assume the following model of the economy, with the price level fixed at 1: C= 0.8(Y – T) T=1,000 G= 1,000 MIP = M/P = 0.4Y – 40r I= 800 – 20r Y= C+I+G M = 1,200 Write a numerical formula for the IS curve, showing Y as a function of r alone. (Hint: Substitute out C, I, G, and T.) Write a numerical formula for the LM curve, showing Y as a function of r alone. (Hint: Substitute out M/P.) What are the short-run equilibrium values of Y, r, Y-T, C, I, private saving, public saving, and national saving? Assume that G increases by 200. By how much will Y increase in short- run equilibrium? What is the government-purchases multiplier (the change in Y divided by the change in G)? a. b. с. d.
- Diagrammatically represent the effect on the price level and real GDP in the short run of each of the following : a. An increase in wealth b.an increase in wage rates C. An increase in labour productivitySuppose that a consulting firm has generated the following information about the economy of H: (i) the current employment in export industries is 50,000; (ii) the current total employment in the city is 150,000; (iii) export employment is expected to grow by 10,000 jobs. a. Is there enough information to predict the effect of the increase in export employment on total employment? b. If you have enough information, what is the effect? c. If there is insufficient information, proceed with the analysis as far as you can and list the additional information you need to complete the analysis.Evaluate the following statements using relevant diagrams and provide detailedexplanations. The statements describe events that might shift aggregate demand (AD),aggregate supply (AS), both or neither. Clearly label your diagrams. A) A recent economic report suggests that consumer confidence has increased.B) Apple Inc. has announced a 50% discount on its new generation iPad devices foruniversity students.C) After a prolonged acceleration in economic activity, the government raises the rateof personal income tax.D) A continuing economic expansion has drawn in many working age people (andtheir families) from neighbouring countries in search of jobs and better lives.
- Given the following circumstances, indicate whether or not the aggregate supply curve would shift and, if so, which way would it shift: The price of a barrel of oil doubles An advance in alternative energy technology significantly reduces its cost In order to maintain a relatively clean air quality, a carbon emissions tax is levied against firms with a carbon footprint As a result of fracking, the price of natural gas is significantly reduced Advances in technology increase the productivity of the American worker, on average, by 30%Describe the change in aggregate supply that should result from each of the following changes in determinants. Assume that nothing else is changing besides the identified change. (In your answer, indicate whether the change will "Decrease" or "Increase" aggregate supply or have no effect.) (a) A rise in the average price of inputs; (b) An increase in worker productivity; (c) Government antipollution regulations become stricter; (d) A new subsidy program is enacted for new business investment in productive equipment; (e) Energy prices decline.In the model of aggregate demand and aggregate supply, the quantity of _____ is on the horizontal axis, and the _____ is on the vertical axis. a) output; price level b) money; price level c)output ; interest rate d)money;interest rate