NFLATION RATE Panel 3 NFLATION RATE Panel 2 LRAS X AD ww Panel 1 Panel 3 LRAS LRAS SRAS (E10) X= AD Panel 4 SRAS (E10) AD (M-V-13%) REAL GOP GROWTH RATE GROWTH RATE V.130 DYLATION RATE INPLATION RATE ж Panel 4 LRAS LRAS LRAS SRAS (En-10x) SRAS (E10) GROWTH RATE ich graph/Panel best illustrates what happens if consumers and investors become mor mistic? AD AD MV. 13 REAL GOP GROWTH RATE AD OM-V-139 AD
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- What is the difference between the price level and the tale of inflation?1Why low rate inflation is considered necessary for economic grwoth? Oa It does not affect the purchasing power of wages Ob. It indicates that the currency is in continuous demand by the people Oc taffects only the rich and not the poor Od itact as an incentive to boost in supply in the economy 2When the economy is in Keynesian macroeconomic equilibrium, planned investment is greater than actual investment. O a False O b. True 3Government fixes the floor and ceiling price which will not allow the producers to increase the price on their wish, this is a type of. O a Physical control called price pegging O b. Monetary policy control measures O. Physical control called price tagging Od. Fiscal policy control measures O e None 4Rising output coupled with falling prices is called stagflation O a. False O b. True 5The Value of marginal propensity to consume lies O a. O to 1 O b. Less than zero Oc -1 to 1 Od. Between O to 1 6The Central Bank way to control inflation is Oa Monetary policy…There is currently a political and academic controversy whether or not stimulus packagesagainst the Covid-induced economic recession will cause inflation. Professor OlivierBlanchard has warned that the stimulus package of the US-administration may lead toinflation in the US. However, he does not see inflation dangers emanating from stimulusprograms in the Eurozone. The Next Generation EU program is not only considered to be a stimulus program but also tobe a growth program, which by spending on infrastructure and climate-related investmentsis expected to lead to an increase in potential output.Analyze in an AD-AS model the impact of economic growth on actual GDP and the pricelevel. Also elaborate on the role that an additional demand stimulus could play.
- Congratulationst You have been appointed an economic policy adviser to the United States, You are told that the economy is significantly abowe futtemplyoment GDP. Based on this inlormation, how can the economy would adjust to reach LR.SR Equilbrium (Classical View)? The economy wilt experience low unemployment rate, pushing wages up, and increasing the pelces of a key input (labor). shatting the sAS to the left (up). The economy will experience high unemployment rate, pushing wages down, and reducing the prices of a key input (labor). shiting the SAS to the right (down). The econoriny wil experience low unemployment rate, decreasing inceme, which will eventually shift the AD to the left. The eooncmy will experience low unemployment rate, pushing wages up, and increasing the prices of a key input (labor), shiting the sAs to the night (down).Economics How are aggregate output and the real interest rate determined in compettive egulbum? OA The aggregate oulput can be found by multiplying current employment by current real wage at the intesection of the current labour supply and demand curves, given the raal inderest rate. and ssubtracting the level of investment in the economy OB. Cument aggregata output and the real interest rate are determined by the intersection of the output supoly and demand ouves OC. Cunent aggregate output can be found by finding current employment from the intersection of the current labour supply and domand ourves given the real interest rate and aocounting tor total tactor productivity OD. The real interest rate is determined by the slope of the output supply curve at a given level of aggregate outputUnder a credible system offixed nominal exchangerates...A.The Central Bank can adjustthe interest rate as it deemsappropriate for smoothingdomestic outputfluctuationsB.Domestic inflation will beapproximately equal to theinflation rate of the countryto which the domesticcurrency is peggedC.Public debt can bemonetised, i.e. viagovernment bonds boughtby the Central Bank againstnewly created moneyD.All of these optionsE.None of these options
- Given the unpopularity of inflation, why don’t elected leaders always supportefforts to reduce inflation? Many economists believe that countries can reducethe cost of disinflation by letting their central banks make decisions aboutmonetary policy without interference from politicians. Why might this be so?Illustrate and interpretthe short-run and longrun effects of temporary and permanentsupply shocksYou are hired by the Council of Economic Advisors (CEA) as an economic consultant.The chairperson of the CEA tells you that she believes the current unemployment rate istoo high. The unemployment rate can be reduced if aggregate output increases. She wantsto know what policy to pursue to increase aggregate output by 300 billion TL. The bestestimate she has for the MPC is 0.8. Which of the following policies should yourecommend?a) Increase government purchases by 75 billion TL.b) Reduce taxes by 75 billion TL.c) Reduce taxes by 75 billion TL and to increase government purchases by 75 billion TL.d) Reduce the budget deficit by 300 billion TL
- The economy begins in longcrun equilibrium. Thenone day, the president appoints a new chair of theFederal Reserve. 11\is new chainnan is well known forher view that inflation is not a major problcn1 for aneconomy.a. How would this news affect the price level thatpeople would expect to prevail?b. How would this change in the expected pricelevel affect the nonlinal wage that workers andfmn.s agree to in their new labor contracts?c. How would this change in the nonlinal wageaffect the profitability of producing goods andservia,s at any given price level?d. How docs this change in profitability affect theshort-run aggregate-supply curve?e. ff aggregate demand is held constant, how docsthis sllift in the aggregate-supply curve affect theprice level and the quantity of output produced?f. Do you think this Fed chainnan was a goodappointment?Suppose that in Macroland the consumption and the investment have a negative relationship withthe real interest rate and positive relationship with Y. The Central Bank of the country targets acertain nominal interest rate and lets the money supply adjust in order to reach that interest rate.a. Draw a graph of the IS-LM model in this situation.b. Suppose that the Central Bank announces an increase of the interest rate in the future.Represent graphically the initial position of IS-LM curves. Then, show the IS-LM curves of thefuture, after the announced increase in the interest rate is implemented. (Assume that the ISis constant.).c. Suppose that agents today take into consideration the resulting income of the future whendeciding the amount of consumption and investment. Show what happens to the IS-LMcurves today after the announcement of the CB (tip: the CB is NOT increasing the nominalinterest rate today).d. The government decides to step in and avoid any deviation of Y from the initial…Suppose market partidpants expect the krona to appredlate relattve to the dollar. In the following graph, shft the supply curve, the demand curve, or both to illustrate the effects of the expectations described. D D QUANTITY (krona) True or False: The expectation that the krona would appreciate actually caused the krona to depreciate. O True O False PRICE (dollars per krona)