Use the AS/AD model to determine how each of these events will affect the economy.Determine if the economy is initially to the LEFT, ON, or to the RIGHT of the LARS Type exactly one of these 3 options for credit for each of the letters.A- Initial situation: cyclical unemployment is 4%B initial situation: overutilization of resourcesC-Initial situation: inflationary gapD-Initial situation: the unemployment rate is equal to the natural rate of unemploymentE-Initial situation: a positive GDP GAPF-Initial situation: unemployment rate of 6% (US economy)G-Initial situation: cyclical unemployment is zero.H-Initial situation: a recession

The objective of the question is to determine the position of the economy with respect to the…

Answered: Use the AS/AD model to determine how…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Please do parts ABC
Mexico is experiencing a Recession due to decrease demand. Draw a correcly labeled AS/AD model representing where the economy is relative to the Natural Rate of Unemployment.
Explain why a supply shocks is most of the time believed to be temporary? And does not result in government requiring to do any special policy to rectify the problem.
How would the AD/AS model be different if it assumed rational expectations rather than adaptive expectations? Define and give an example of each.
Consider a one-sided search model of unemployment we developed in class. In class discussion we never mentioned how unemployment insurance benefit, b, is financed. For this question, you are going to incorporate it to the model. Let's assume that in order to finance the unemployment insurance benefit, b, the government imposes lump-sum tax, T, on each employed worker. Assuming that the economy is in a long-run steady-state equilibrium, the total amount that needs to be paid out to unemployed workers is bU, where as usual, U repre- sents the fraction of unemployed. The total amount of tax collected (which we can interpret as an unemployment insurance premium) from employed workers is (1U)T. The government runs balanced budget, hence, bU = (1 – U)T. In this new setting, please show the effect of an increase in unemployment in- surance benefits, b, on reservation wage, w*, and on the long-run unemployment rate, U. Using graphs clearly demonstrate how the behavior of this model is…
There is an on‐going debate on how unemployment benefits affect the unemployment rate. In the context of the Mortensen‐Pissarides model, unemployment benefits are represented by the variable b. Explain carefully how an increase in b affects each equilibrium condition (Beveridge curve, vacancy supply condition, and wage setting curve.) How is the steady‐state unemployment rate impacted by an increase in b? Use the simulation tool here, https://www.briancjenkins.com/dmp‐model/simulation‐tool.html, to check your answer.
Critically evaluate“ the macroeconomics of MMT is a restatement of elementary well-understood Keynesian macroeconomics”
Consider the Ramsey Model of the macroeconomy. Explain using a phase diagram how an economy starting from any point in phase space reaches the unique steady state solution. Now suppose once the steady state is reached that there is an unexpected permanent fall in government spending. Explain, using a phase diagram, how the c = 0 and k = 0 curves are affected and how the economy moves to a new steady state. How are interest rates affected during the transition to the new steady state? Explain your answer.
We try to predict the unemployment (unem) with an AR(1) model and VAR(1) (unemployment and inflation). Figure 1 shows the predication results based on AR(1) and the Figure 2 shows that for VAR(1). The RMSE and MAE for AR(1) are 0.48 and 0.54, while those for VAR(1) are 0.58 and 0.52. Which one of the following statements is correct: 10 civilian unemployment rate, % амми um 1950 O b. O c. O d. 1960 1950 num True unemployment rate before 1996 Confidence interval True unemployment rate after 1996 1970 1980 1948 through 2003 1960 1970 1980 1948 through 2003 True unemployment rate before 1996- Confidence interval True unemployment rate after 1996 1990 AR(1) performs better than VAR(1) because it has smaller RMSE VAR(1) performs better than AR(1) because it has smaller MAE We cannot tell which one performs better Forecast based on AR(1) Confidence interval 1990 2000 2000 We try to predict the unemployment (unem) with an AR(1) model and VAR(1) (unemployment and inflation). Figure 1 shows the…
1.At which equilibrium point does the economy have inflationary gap and what is the value of such gap in percentage point 2.what government policy should be recommended for this specific macroeconomic problem ? 3. What does e1 represent?

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