A nation's economy is in short run equilibrium. The actual unemployment rate is lower than the natural rate of unemployment. A. Show each of the following using a correctly labeled graph of the long run aggregate supply curve, short run aggregate supply curve, and aggregate demand curve: i. Current price level, labeled PL1, and current output level, labeled Y1 ii. The full employment output level, labeled Yf. B. Use a correctly labeled money market graph to show how the country's central bank action can move the economy toward its long run equilibrium. Indicate how this affects the equilibrium nominal interest rate in the short run.
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A recession can be explained as a sustained period of weak or negative growth in real GDP (output) that is accompanied by a significant increment in the unemployment rate. Many other signs of economic activity are also weak during a recession.
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- Assume that a country's economy is in short-run equilibrium and the actual unemployment rate is lower than the natural rate of unemployment. A. Using a correctly labeled graph of the long-run aggregate supply curve, short-run aggregate supply curve, and aggregate demand curve, show each of the following: i. Current price level, labeled P1, and current output level, labeled Y1 ii. The full employment output level, labeled Yf B. What open market operation can the country's central bank use to move the economy toward its long run equilibrium? C. Use a correctly labeled money market graph to show how the country's central bank action to move the economy toward its long-run equilibrium affects the equilibrium nominal interest rate in the short run. D. Based on the interest rate change from Part C, will each of the following increase, decrease, or remain the same in the short run? i. Real output. Explain. ii. Natural rate of unemployment E. Assume instead that…Assume the economy of the United States is currently experiencing a recession. A. Draw a correctly labeled graph of the long run aggregate supply, short run aggregate supply, and aggregate demand curves, and show each of the following: i. Current real output, labeled Y1, and current price level, labeled P1 ii. Full employment output, labeled Yf B. Identify 1 action the central bank could take to help the economy recover from their recession. C. Draw a correctly labeled graph of the money market and show the impact of the central bank's action identified in Part B on the nominal interest rate. D. On your graph in Part A, show the effect of the central bank's action identified in Part B on real output and price level. E. Assume there is an increase in business confidence as a result of the central bank's action. i. What will happen to the demand for capital goods? ii. Draw a correctly labeled graph of the loanable funds market and show the effect of the…Assume the economy of the United States is currently experiencing a recession. A. Draw a correctly labeled graph of the long run aggregate supply, short run aggregate supply, and aggregate demand curves, and show each of the following: i. Current real output, labeled Y1, and current price level, labeled P1 ii. Full employment output, labeled Yf B. Identify 1 action the central bank could take to help the economy recover from their recession. C. Draw a correctly labeled graph of the money market and show the impact of the central bank's action identified in Part B on the nominal interest rate. D. On your graph in Part A, show the effect of the central bank's action identified in Part B on real output and price level. E. Assume there is an increase in business confidence as a result of the central bank's action. i. What will happen to the demand for capital goods? ii. Draw a correctly labeled graph of the loanable funds market and show the effect of the…
- 3)Show and explain the effects of an increase in aggregate demand in the long-run and short-run by using AD–AScurves.2)Show and explain by using a graph, what will happen to the price level and real GDP if the quantity of moneyincreases and the increase is not anticipated; that is, the price level is not expected to change.1)By using aggregate demand (AD) and aggregate supply (AS) curves, show and explain the effects of ananticipated increase in money supply on macroeconomic equilibrium according to Rational ExpectationsHypothesis.The economy starts out on the curves AD, and SAS- Price level (GDP deflator, 2009 = 100) Suppose that people expect deflation (a falling price level), but aggregate demand remains at AD 240 LAS Show what happens to the short-run and long-run aggregate supply curve. Label the new curve. 200- SASO Draw a point at the new macroeconomic equilibrium. 160 When it becomes obvious to everyone that the deflation is not going to occur, 120 120 O A. long-run aggregate supply increases O B. the money wage rate falls further OC. aggregate demand decreases OD. the money wage rate rises and the short-run aggregate supply curve returns to its original position 80 AD 40- 10 10 11 12 13 14 Real GDP (trillions of 2009 dollars) 15 >>> Draw only the objects specified in the question.Using aggregate demand and aggregate supply, graph the effects on the price level and GDP of each of the following. Draw a large graph and label all axes, initial and final equilibrium points, direction of shift if any, all curves and lines, equilibrium values on the x- and y-axes. State the conclusion in words. a. A cut in income taxes b. An increase in military spending c. A drop in export demand by foreign purchasers d. An increase in imports e. A decline in business investment spending
- Which one of the following variables is not held constant along a given aggregate demand curve? Select one: A. fiscal policy B. monetary policy C. expectations about inflation D. the price level O E. the exchange rateWhen stagflation began to appear in the US economy in the late 1960s, economists and policymakers were perplexed because they had never seen __________ and __________ at the same time. a. high inflation rates; high interest rates b. a stagnant economy; high unemployment rates c. high unemployment rates; high growth rates d. high inflation rates; high unemployment ratesThe economy begins in long-run equilibrium. Then one day, the president appoints a new Fed chair. This new chair is well known for her view that inflation is not a major problem for an economy. a. How would this news affect the price level that people expect to prevail? b. How would this change in the expected price level affect the nominal wage that workers and firms agree to in their new labor contracts? c. How would this change in the nominal wage affect the profitability of producing goods and services at any given price level?
- 10. What does the AD curve represent economically? A. It represents the difference between actual real GDP and nominal GDP B. It describes how the Fed chooses short-run output based on inflation C. It describes how the velocity of money can fluctuate in the short run D. All of the aboveIf a central bank wants to counter the change in the price level caused by an adverse supply shock, it could change the money supply to shift a. aggregate demand right. b. aggregate demand left. c. aggregate supply right. d. aggregate supply left.In the long run, the effect of an increase in money supply can be summarized as follows: Select one: a. Price level and nominal wage will increase in the same proportion as the increase in money supply. Consequently, the real wage falls, and level of employment increases. The LRAS shifts to the right. b. Price level and nominal wage will increase in the same proportion as the increase in money supply. Consequently, the real wage, and level of employment stays the same. The LRAS shifts right and back to the left again. c. Price level and nominal wage will increase in the same proportion as the increase in money supply. Consequently, the real wage rises, and level of employment decreases. The LRAS shifts to the left d. Price level and nominal wage will increase in the same proportion as the increase in money supply. Consequently, the real wage, and level of employment stays the same. The LRAS does not shift at all.