1. The economy of Whoville is described by the following equations: AD: Y = 4000+2(M/P) SRAS: Y=Y +100(P-P²) Okun's Law: (Y-Y)/Ỹ = −2(u−u”) In this economy full-employment output Y equals 6000, money supply M equals 4000, and the natural rate of unemployment u" equals 0.05. Suppose that Whoville has been in this long run equilibrium for a while and is expected to stay in the long run equilibrium with no changes to fiscal or monetary policy. Please calculate the expected price level Pe for Whoville in the long run. A totally unexpected increase in money supply occurs, raising it from 4000 to 4488. Given this unexpected increase, please calculate the short-run equilibrium values of the price level, expected price level, output, and unemployment rate (leave your answer for u as a fraction). Using what you calculated, report the values of cyclical unemployment and unanticipated inflation (leave this in fraction too). What is the slope of the expectations-augmented Phillips curve in Whoville? What is the tradeoff between unemployment and inflation for the Whoville economy?

1. The economy of Whoville is described by the following equations: AD: Y = 4000+2(M/P) SRAS: Y=Y +100(P-P²) Okun's Law: (Y-Y)/Ỹ = −2(u−u”) In this economy full-employment output Y equals 6000, money supply M equals 4000, and the natural rate of unemployment u" equals 0.05. Suppose that Whoville has been in this long run equilibrium for a while and is expected to stay in the long run equilibrium with no changes to fiscal or monetary policy. Please calculate the expected price level Pe for Whoville in the long run. A totally unexpected increase in money supply occurs, raising it from 4000 to 4488. Given this unexpected increase, please calculate the short-run equilibrium values of the price level, expected price level, output, and unemployment rate (leave your answer for u as a fraction). Using what you calculated, report the values of cyclical unemployment and unanticipated inflation (leave this in fraction too). What is the slope of the expectations-augmented Phillips curve in Whoville? What is the tradeoff between unemployment and inflation for the Whoville economy?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 61P: Table 24.4 describes Santhers economy. Plot the AD/AS curves and identify the equilibrium. Would you...

See similar textbooks

Related questions

Q: Suppose the inverse market demand function is p(q) = 10 + 125/q, p, q ≥ 1 and the market supply…

A: Inverse market demand equation: Market supply equation: The given demand equation shows that the…

Q: Tennis Products, Inc., produces three models of high-quality tennis rackets. The following table…

A: PLEASE FIND THE ANSWER BELOW. FIXED COST: The term fixed cost refers to a cost that does not…

Q: Just 2.3

A: Hi Student, Thanks for posting the question. As per the guideline, we are providing answer for the…

Q: In the event of the death of a licensee, a temporary license may be issued to which of the following…

A: Answer: In the event of the death of a licensee, a temporary license may be issued to either…

Q: A hair salon has very loyal customers and faces a weekly demand for blowouts equal to qD = 1,040 –…

A: Answer to the sub parts (g), (h) and (i) are as follows :

Q: There is value in evaluating the products you buy out of habit because you may find that you have…

A: In a market, there are various types of products offered by the producers from which some of the…

Q: There is a monthly profit objective of $17,000 for Ricky's Repair Shop. 60 percent of for by…

A: The profit margin is a proportion of an organization's benefit (deals short all costs) separated by…

Q: What type of pricing does this represent? a. Limit pricing. b. 1st degree price discrimination c.…

A: Price discrimination refers to the practice of firms charging different price to different…

Q: Average fixed cost is 0 at zero level of output True/False

A: # Average fixed cost is given by the ratio of total fixed cost and total quantity.

Q: Vegemite has been recently introduced to the Chinese market. It sells for the equivalent of $2 per…

A: Given Price of vegemite (P)=$2 per jar Variable cost of vegemite VC = $0.50 per jar Fixed cost (FC)…

Q: A company makes and sells toasters. To make the toasters there is a fixed monthly cost of $27,000…

A: Here we have to write the cost function, the revenue function, the profit function, the break even…

Q: XYZ company can manufacture their own products and sells them. They are able to control the demand…

A: Profit maximizing quantity of output is where marginal revenue equals marginal cost.

Q: When average cost decreases as output increases, Group of answer choices marginal cost is below…

A: The economies of scale curve is a long-run average cost curve since it permits all variables of…

Q: Fixed cost Variable cost No. of cupcake Total cost (FC+VC) $420 $2.10 1 $422.10…

A: (I) Graph of both functions on the same coordinate axes is shown below:

Q: Which of the following businesses is most likely to use process costing? Custom home builder CPA…

A: Chemical manufacturing typically involves continuous production processes where products are…

Q: Solve and analyze the following problems. Make sure all the steps are properly justified. Correctly…

A: The equilibrium is the stable state where the demand and supply are equal. When the price are above…

Q: The demand function for FreshFood Exclusive Brand's product is D = 80 - 2p , where D is the number…

A: Demand function D = 80 -2p => p = (80 -D)/2 => p = 40 - 0.5D ------------------ Total revenue…

Q: Q=48+0.1p p=Price TC=820+10Q2 Q=Number of units Find the revenue maximizing price and output.

A: Given, Q=48+0.1p TC=820+10Q2

Q: The profit of a firm during the financial year is $1200 and cost incurred is $600. Find the…

A: Mark-up (over cost) = (Profit / Cost) x 100%

Q: The author concludes that people make irrational choices when something is offered for free because:…

A: In economics, irrational choices refer to decisions made by individuals that appear to be contrary…

Q: Define markup amount.

A: Profits are the difference between a company's total revenue and its production costs. Profits are…

Q: A company manufactures and sells x cellphones per week. The weekly price-demand and cost equations…

A: (A) Demand equation p = 400 - 0.5x Revenue function: Revenue = Price * Quantity R = px => R =…

Q: A company produces and sells a consumer product and is able to control the demand for the product by…

A: p=$200-0.05D Now,Total Revenue for the company TR=PD=$200-0.05D Now,Marginal Revenue for the company…

Q: Calculate total cost when profit is $310 and the total revenue is $650

A: The data presented in the question above is:- Profits = $310 Total revenue = $650 Total cost is to…

Q: The 1,850 residents of Great Donut Island are all fishermen. Every morning they go to the nearest…

A: Given: The number of residents are = 1,850 Distance = 20 mile The fixed cost for each port is =…

Q: Ace Shoe Company sells heel replacement kits for men's shoes. It has fixed costs of $10 million and…

A: Economics is a branch of social science that describes and analyzes the behaviors and decisions…

Question

Hand written solutions are strictly prohibited

1. The economy of Whoville is described by the following equations:
AD:
Y = 4000+2(M/P)
SRAS:
Y=Y +100(P-P²)
Okun's Law: (Y-Y)/Ỹ = −2(u−u”)
In this economy full-employment output Y equals 6000, money supply M equals 4000,
and the natural rate of unemployment u" equals 0.05. Suppose that Whoville has been in
this long run equilibrium for a while and is expected to stay in the long run equilibrium
with no changes to fiscal or monetary policy.
Please calculate the expected price level Pe for Whoville in the long run.
A totally unexpected increase in money supply occurs, raising it from 4000 to 4488.
Given this unexpected increase, please calculate the short-run equilibrium values of
the price level, expected price level, output, and unemployment rate (leave your
answer for u as a fraction). Using what you calculated, report the values of cyclical
unemployment and unanticipated inflation (leave this in fraction too).
What is the slope of the expectations-augmented Phillips curve in Whoville?
What is the tradeoff between unemployment and inflation for the Whoville economy?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: State the condition given

VIEW

Step 2: Calculate expected price level for the economy

VIEW

Step 3: Find the value of cyclical unemployment and unanticipated inflation

VIEW

Step 4: Find slope of expected augmented philips curve

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 5 steps with 7 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Use the figures below to answer the following question(s): P₁ P3 0 X3 X₁ X₂ Qp Real Output Graph A Profits to decrease AS₁ X₂ ASLR Product prices to decrease ут X Qp Real Output Graph B AS₂ AS₁ In Graph A above, an increase in the price level from P₁ to P₂ will cause: AS 3 The nation's unemployment rate to be greater than the natural rate of unemployment The nation's unemployment rate to be less than the natural rate of unemployment
2. The connection between macroeconomics and microeconomics While economists measure unemployment at the macroeconomic level, microeconomic forces are often responsible for this macro aggregate. In other words, the tie between microeconomics and macroeconomics is inevitable when discussing the level of unemployment in an economy. Suppose the following graph represents the market for unskilled labor in a fictional economy. These workers typically represent the young, inexperienced, or uneducated part of the labor force and are therefore most effected by changes in the unemployment rate. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. WAGE (Dollars per hour) 15 12 0 0 400 Labor Supply Labor Demand 800 200 QUANTITY (Thousands of workers) 600 1000 Graph Input Tool Labor Market…
Consider an economy with the Cobb-Douglas production function: Y = 3K0.2L0.8 K = 140000; L=8000 Round answers to two places after the decimal when necessary. c. Now suppose that Congress, concerned about the welfare of the working class, passes a law setting a minimum wage that is 9 percent above the current equilibrium wage. Assuming that Congress cannot dictate how many workers are hired at the mandated wage, calculate what happens to the real wage, employment, output, and the total amount earned by workers. Real wages = $ Total output = d. Does Congress succeed in its goal of helping the working class? O Yes, Congress does succeed in its goal of helping the working class. units No, Congress does not succeed in its goal of helping the working class. Employment = Total earned by workers = $ workers e. Does this analysis provide a good way of thinking about a minimum-wage law? O No, this analysis does not provide a good way of thinking about a minimum-wage law. Yes, this analysis does…
What are the two biggest recessions in terms of length and magnitude from the graph, the shaded areas show recession and 2020 is not included? How does the unemployment rate react during the two main recessions you have identified? What was the level of the unemployment rate during the first and the last quarter of negative growth for those two recessions? why data for France for 1980s is not avaliable What do you conclude about the link between recession and the variation in unemployment?
4. Suppose that Okun's law can be described by the following equation: Y-Y* = -3(u – u*) Y* Where u is the unemployment rate, u* is the natural rate of unemployment, Y is the GDP, and Y* is the potential GDP. Suppose that u 5%. Calculate the GDP Calculate the poténtial GDP if Y The job losing rate is 2.0%, and the job-finding rate is 45%. Find the unemployment rate in the next month, knowing that the labour force (LF) totals 1,000? Calculate the employment rate (e) and the total working-age population (15-64 Years), if the labour force participation rate (If) is equal to 76%. gap if u = 5.4%. = 12,000
If the natural rate of unemployment is 5.0 percent, the current unemployment rate is 7.3 percent, and the current GDP is 6 billion, according to Okun's law, the economy's potential output (in billion dollars, rounded to two decimal points) is:
The natural rate of unemployment is 6%, and the actual unemployment rate is 9%, Okun's coefficient for this country is 3. If the potential GDP this year is 1600 billion Euros, what amount of output was lost due to unemployment?
Assume that the equilibrium level of Y (or real GDP) is $10 trillion, the actual unemployment rate is 4.0%, and the natural unemployment rate is 5%. Okun's Law tells us that we should increase Y by 1.6% O increase Y by 2.0% decrease Y by 1.6% decrease Y by 2.0%
The figure below depicts the economy of Altrua, which is presently in equilibrium. Enter your responses below rounded to one decimal place. a. The size of its recessionary gap is $ .b. The size of this gap as a percentage of its actual GDP is %.c. If the natural rate of unemployment is 1%, use Okun’s law to calculate the amount of actual unemployment in Altrua. The actual rate of unemployment is %. Note:- Please avoid using ChatGPT and refrain from providing handwritten solutions; otherwise, I will definitely give a downvote. Also, be mindful of plagiarism.Answer completely and accurate answer.Rest assured, you will receive an upvote if the answer is accurate.
What are the two biggest recessions in terms of length and magnitude from the graph, the shaded areas show recession and 2020 is not included? How does the unemployment rate react during the two main recessions you have identified? What was the level of the unemployment rate during the first and the last quarter of negative growth for those two recessions? What do you conclude about the link between recession and the variation in unemployment?
PRICE LEVEL (CPI) The following graph represents the short-run aggregate supply curve (SRAS) based on an expected price level of 150. The economy's full- employment output level is $9 trillion. Major unions across the country have recently negotiated three-year wage contracts with employers. The wage contracts are based on an expected price level of 150, but the actual price level turns out to be 100. Show the short-run effect of the unexpectedly low price level by dragging the curve or moving the point to the appropriate position. 300 SRAS[150] 250 SRAS[150] 200 150 100 50 0 1 0 3 6 9 12 15 18 REAL GDP (Trillions of dollars) ? 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 profit than they expected on each unit of output they produce, and, therefore, they than workers and firms their production level. At the same time, the real value of wages and other resource prices is…
Please no written by hand solution