Unit 8 Answers 1) Long-run Macroeconomic Equilibrium and Stock Market Boom Let us assume the economy reaches its long-run macroeconomic equilibrium in 2020. When the economy is in the long run macroeconomic equilibrium, the stock market will also reach its boom. This will in turn lead to increases in stock prices more than expected, and the stock prices will stay high for some period. Answer the following questions based on the scenarios of long macroeconomic equilibrium and consequent stock market boom. a) Which curve will shift? Is it AS curve or AD curve? In which direction does the shift occur? The aggregate demand curve will shift right b) In the short-run, what will happen to the price level and output (real GDP)? In the …show more content…
Thus the aggregate supply goes down triggering a decline in employment levels. This in turn, makes consumers cautious spenders and they tend to save rather than spend resulting in decline in the aggregate demand one of the factors to cause the upward spite is the war. 5) Assume there are short-run and long-run Macroeconomic Equilibriums in the economy. Refer to the AS and AD curves above to answer the following questions. a) What is the initial point of the long-run macroeconomic equilibrium? What are the equilibrium values? What does the appearance of the long-run aggregate-supply (LRAS) curve indicate? How does it differ from AS? The long-run equilibrium of the economy is found where the aggregate-demand curve crosses the long-run aggregate-supply curve (point A). When the economy reaches this long-run equilibrium, the expected price level will have adjusted to equal the actual price level. As a result, the short-run aggregate-supply curve crosses this point as well. b) What are the factors that can shift short-run aggregate supply curve from AS1 to AS2? What does Point A represent in the graph? What does point B represent? Is it the short-run or long-run macroeconomic equilibrium? Explain. Shifts in the AS curve can be caused by the following factors: changes in size & quality of the labor force available for production, changes in size & quality of capital stock through investment, technological progress
[pic] A decrease in production costs creates a downward shift in the short-run aggregate supply curve. Wages continue to fall until labor market equilibrium returns them to long term levels. This new equilibrium point is the point on the graph where D2 meets S2.
5pts Draw a demand and supply curve . Label properly with axis. Explain the curve and how it works .
In Exhibit 2-19, the production possibilities curves for a country are shown for the years Year X and Year Y. Which of the following could have caused a shift for Year X to Year Y in production possibilities curves?
A change to government spending (Specify whether increase or decrease is needed to shift IS curve to the right.)
Refer to the sets of the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves. Use the graphs to explain the process and steps by which each of the following economic scenarios will shift the economy from one long-run macroeconomic equilibrium to another equilibrium. Under each scenario, elaborate the short-run and long-run effects of the shifts in the aggregate demand and aggregate supply curves on the aggregate price level and aggregate output (real GDP).
The Great Depression started in 1930 and lasted until 1939. It can be regarded as the worst depression the world has ever seen in the history. Spread across various nations, the Great Depression badly hampered each and every aspect of the economic, business, political, and social life. The most affected regions due to this economic slump were North America, Europe, and other industrialized Western countries. Among various other reasons, economists, researchers, and historians cite the 'Black Tuesday (October 29, 1929)' as the biggest cause of the Great Depression. It was the day on which the stock market crashed. A massive number of individuals, business corporations, and banking companies had invested huge amounts in stocks. In order to survive from heavy loss, everyone hurried to sell its stocks, but there were no buyers. The banks went bankrupt and further increased panic among individuals and businesses. In order to safeguard their remaining money, these individuals and businesses rushed to withdraw their deposits from their bank accounts. These heavy withdrawals further caused various commercial banks to shut down their operations due to bankruptcy.
If we consider this supply and demand diagram prior to Government intervention (red line), the market leads to equilibrium price and quantity (P1, Q1) determined at the intersection of the supply (or MPC) and demand curve. Due to the
g) A contraction in investment may also result from the fact that several countries reallocate their
Consumer expenditures rising during this term will move the aggregate demand curve to the right as increased spending increases demand. This BLS report indicates that the next term should show statistical aggregate demand increases, and according to the Classical model perspective encourages a laissez-faire approach concerning correction of the long-term economic factors (Colander, 2010). The Classical model works perfectly as consumer expenditures are trending on the rise when factoring consumer expenditures. Until a more apparent downturn shows itself, the invisible hand should continue to work naturally.
As economic growth increases moderately in 2014, the rate of inflation is expected to remain below 2 percent. The price of goods in the country will continue to be restricted by global competition and use of production capacities that are relatively low as compared to historical averages. In addition, the inflation rate will remain below 2 percent because of decrease in energy prices and small increase in the prices of food. Nonetheless, while energy prices continue to reduce this year, the percentage of the decrease will be less while food prices may regain normal rate of growth.
Two macroeconomic variables that decline when the economy goes into a recession are real GDP and investment spending. GDP will decrease because the economy will be producing fewer goods and services overall. Investment spending, spending on new capital, will decrease in order to conserve and spend in other areas. The unemployment rate is one macroeconomic variable that will rise during a recession. If an economy begins producing fewer goods and services, businesses will need fewer employees to meet the production demand.
to its natural rate and, consequently, inflation ensues. There is no trade-off in the long run.
Macro Policy and CA AA Curve Aggregate Demand Determinants of Aggregate Demand Aggregate demand the aggregate amount of goods and services that individuals and institutions are willing and able to buy C: consumption expenditure I: investment expenditure G: government expenditure (purchases of final goods and services) CA: net expenditure by foreigners (the current account) Alan G. Isaac Slides for International Finance Introductory Concepts Short-Run Model: DD and AA Liquidity Trap Macro Policy and CA AA Curve Aggregate Demand Determinants of Consumption Demand ^ ^ disposable income (Yd = Y - T)
In principle, an economy is in equilibrium when the main macroeconomic variables tend to remain stable over time without external shocks. However, the conditions that this balance must fulfill differ according to the period in which we are analyzing the economy.
The aggregate demand curve shows the relationship between the general price level and the real national output. The rightward shift of the aggregate demand curve is largely due to a change in consumption spending, which results in an increase from AD1 to AD2. The long-run aggregate supply curve, which shows full employment of resources, will shift to the right and create an inflationary gap. In addition, it is seen that real GDP increases from Y1 to Y2 and that the price level increases from P1 to