Our model takes the price level � as given in the short run, but in reality, the currency appreciation caused by a permanent fiscal expansion might cause � (CPI level) to fall a bit by lowering some import prices. If � can fall slightly as a result of a permanent fiscal expansion, is it still true that there are no output effects in the short run?
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- Assume that the sacrifice ratio in the Philippines is 3, the unemployment rate is at its natural level, and inflation is presently at 6%. Assume further that the target inflation rate of the Bangko Sentral ng Pilipinas (BSP) is 3%. a. If the BSP wants to bring down inflation to 3%, then GDP must go down by how much (%)? J b. Assuming that the Okun relationship in the Philippines is defined by the following equation: GDP growth = 4.241 1.234 x (change in unemployment) Thus, if inflation is initially at 6%, unemployment ought to rise by points if the BSP wants inflation to go down by 3 percentage points — nercentageDepict in the AD-AS model, an economy exhibiting a short run equilibrium with a negative output gap resulting from a decline in AD caused by falling investment spending. What is true about the level of unemployment in this circumstance? What is true about the utilization of capital in this circumstance? What are the implications of your statements in parts a and b for long run adjustments in resource prices? How will these changes in resource prices impact the economy in the long run? Depict this change in your graph.Interpret the change you drew on the previous graph by filling in the blanks in the following paragraph: The lower-than-expected price level causes firms to earn more profit than they expected on each unit of output they produce, and, therefore, they decrease their production level. At the same time, the real value of wages and other resource prices are lower than workers and firms expected when they signed long-term contracts. As a result, the economy as a whole produces at a level below the unemployment rate is lower than its natural rate. its potential output, and Now, suppose prices remain lower than expected. As a result, in the next round of labor negotiations, unions accept lower wages for their members. The following graph shows the potential output for this economy as well as the same initial short-run aggregate supply curve as in the first graph. Shift one or both of these lines to illustrate how the economy adjusts to a new long-run equilibrium. PRICE LEVEL 180 SRAS 150…
- Suppose the people of Canada has reduced their spending on goods and services from the United States. What will be the effect on real GDP and the price level in the short run? In the long run? Show your results graphically.AS Price Level P1 P2 AD AD' Y2 Y1 Real National Income Which of the following could explain the shift shown in the graph above form AD to AD'? (Check all that apply.) A decrease in government military outlays A decrease in the desire among households to save The central bank attempts to cause a rise in the rate of inflation A general technological improvement A trend toward pessimism among business peopleAs the Federal Reserve sharply raises rates in the face if substantial inflationary pressures, economists are trying to gauge the extent to which the U.S. labor market is slowing. First, how might you try to measure labor market slack? Second, across the business cycle, describe how the gap between whatever is true unemployment and a notion of “full” employment generally relates to inflationary pressures. Finally, relate this gap to the economy’s overall ‘output gap’ (actual GDP vs. potential GDP).
- The figure below is a part of the AD-AS model as a description of the current situation of an economy. PA=$10 P YA=4000 Y a) Find the short-run equilibrium (i.e. the real output and the price level thereof) of this economy. b) If the natural level of output is 3500, which one will be higher, the unemployment rate at point A, or the natural unemployment rate? Explain. c) Give two reasons as to why the short-run aggregate supply is upward sloping. d) Suppose the government takes no action about the situation indicated above. Explain, with the help of a figure properly labeled, what will happen in this economy in the long run. e) Describe the two kinds of macroeconomic policies that can be used in the situation described before part c). Indicate clearly in your description whether each policy is to the aggregate demand or aggregate supply or Further, give reason(s) as to why the government may want to use these policies rather than doing nothing.Should the US be more concerned about deflationary pressure or inflationary pressure at this time? Are there strong indicators of deflation given the state of the automobile market and housing market?Imagine that war destroys several valuable coal-burning power plants and makes energy significantly more expensive, increasing costs of business for all domestic producers. What effects do you predict in the short run on output and price level? What might policymakers do in order to counteract these effects?
- The table below shows information on aggregate supply, aggregate demand and the price level for the imaginary country of Xurbia. Price Level AD AS 110 700 600 120 690 640 130 680 680 140 670 720 150 660 740 160 650 760 170 640 770 Plot the AD/AS diagram from the data shown (Don't have to show graph but do draw it to help you answer the questions). a. Identify the equilibrium. b. Imagine that as a result of a government tax cut, aggregate demand becomes higher by 50 at every price level. Identify the new equilibrium. c. How will the new equilibrium alter output? How will it alter the price level? What do you think will happen to employment?The graph below shows the AD-AS diagram for the US. Suppose that the economy is initially in long-run equilibrium with the price level of 700 (Red AD and SRAS curves). Now suppose that dollar depreciates. Price Level 1200 1100- 1000 900 800 700- 600* 500 400- 300- 200- 100 HITTE 100 200 300 400 500 Real GDP As a result of this event what is the new short-run price level? 600 700 800 900 1000 1100 120 QPlease use the AD-AS model to analyze the effects of monetary policy and fiscal policy on economic outcome in an open economy: a. Please show graphically the shifting of the AD curve after the Fed conducts an expansionary monetary policy in a closed economy (A closed economy means there is no international trade.). How do the price level and the real GDP change? b. Suppose the economy becomes an open economy. Please revise the result that you get in part (a). Please explain how you get the new result using the AD-AS model. c. Please show graphically the shifting of the AD curve after the federal government conducts an expansionary fiscal policy in a closed economy. Please show the crowding-out effect. How do the price level and the real GDP change? d. Suppose the economy becomes an open economy. Please revise the result that you get in part (c). Please explain how you get the new result based on the AD-AS model.