According to the rational expectations model, how would an announcement of expansionary monetary policy affect aggregate output? a) It would decrease aggregate output. b) It would increase aggregate output in both the short run and the long run. c) It would increase aggregate output in the short run. d) It would have no effect on aggregate output.
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- In our Aggregate Demand and Supply model, a decrease in Aggregate Demand would cause which of the following in the short run? Group of answer choices a) neither deflation nor inflation b) deflation and recession c) inflation and economic growth d) inflation and recession e) deflation and economic growthAssume that the housing market is in equilibrium in year 1. In year 2, the mortgage rate that banks charge consumers increases, but producers are not affected. Which of the following is most likely to be the equilibrium change? a The equilibrium will be at point C before the change in expectations and point A after the change b The equilibrium will be at point A before the change in expectations and point B after the change c The equilibrium will be at point A before the change in expectations and point C after the change d The equilibrium will be at point E before the change in expectations and point C after the changeAssume that the housing market is in equilibrium in year 1. In year 2, the mortgage rate that banks charge consumers decreases, but producers are not affected. Also in year 2, the cost of lumber used to build homes decreases. Which of the following is most likely to be the equilibrium change? a The equilibrium will be at point C before the change in expectations and point B after the change b The equilibrium will be at point A before the change in expectations and point B after the change c The equilibrium will be at point A before the change in expectations and point E after the change d The equilibrium will be at point E before the change in expectations and point A after the change
- What effects would each of the following have on aggregate demand or aggregate supply? Justify your answer. In each case use a diagram to show the expected effects on the equilibrium price level and real output level in the economy. Assume that all other things remain constant and prices are inflexible downward. (a) A reduction in interest rates at each price level (b) A sizable increase in labor productivity. (c) The nation’s currency appreciates against its major trading partners .Consider the graph below. Assume that, initially, an economy has long-run aggregate supply corresponding to LRAS, short-run supply corresponding to SRAS₁, and aggregate demand corresponding to AD₁. Where will the new equilibrium be in the short run if income tax hikes cause workers to lower their expectations of future income? (Do not assume that all curves shown actually come into play.) Price level (P) 100 95 90 Click or tap the appropriate place in the image. LRAS SRAS SRAS AD₁ AD₁ Real GDP (Y)According to a neoclassical perspective, in the long run, a surge in aggregate demand will most likely result in A) A rise in the level of output. B) An increase in the aggregate price level. C) A decline in the level of output D) Downward pressure on the price level.
- Which of the following is true according to the Neo-Classical macroeconomic model? A) In the long-run equilibrium, the unemployment rate is zero percent. B) Government interventions are required and helpful. C) A capitalist economy automatically adjusts to the full-employment equilibrium in the long-run. D) In the long-run equilibrium, aggregate demand is greater than aggregate supply...Which of the following statements is most accurate? The Keynesian model focuses on aggregate demand while the classical model focuses on aggregate supply. The Keynesian model focuses on aggregate supply while the classical model focuses on aggregate demand. The Keynesian model focuses on long run while the classical model focuses on short run. The Keynesian model calls for no government intervention while the classical model insist the government should act to a macroeconomy.(i) Present a model with rational expectations and the Friedman–Lucas supply function. If policy makers and the public have the same information, can stabilization policies in a stochastic context change aggregate demand and output (i) in the short run, (ii) in the long run?(ii) Present a model with rational expectations and the new Keynesian supply function. If policy makers and the public have the same information, can stabilization policies in a stochastic context affect aggregate demand and output (i) in the short run, (ii) in the long run?(iii) Why do models with rational expectations have difficulty in explaining the persistence of output from its trend and unemployment from the natural rate? What are some of the reasons given for this persistence? If this persistence were incorporated in them, what would be their implications for the effectiveness of monetary policy: could activist monetary policy stabilize output and the unemployment rate? Discuss in the context of a…
- Consider the AD-AS model discussed during the lectures. Assume that the aggregate demand curve is given by Y = 8 - 0.5π, that the long run aggregate supply curve is given by Yp = 7, that the short run aggregate supply curve is given by π = π_expect + 0.3(Y - Yp), and that the monetary rule is given by r = 1 + 0.3π. b) Suppose the economy is in equilibrium at the potential level of output, with inflation expectations equal to actual inflation, which equals 2%. A financial crisis hits the economy. Use the model to interpret what happens in the short run and in the long run if the central bank does not intervene exogenously with an expansionary monetary policy.Suppose an aggregate supply curve shifts right and this is the only change in the economy. What will certainly NOT happen? Group of answer choices: Higher output Lower output Lower price level Aggregate demand curve remains unchanged Which of the following helps to increase employment and decrease inflation? Group of answer choices: Right shift of an aggregate supply curve Right shift of the aggregate demand curve Left shift of the aggregate demand curve Left shift of an aggregate supply curve