According to the AD-AS model, what is more challenging for a central bank: to use active exogenous monetary policy to offset a financial shock, or to use active exogenous monetary policy to offset an exogenous increase in prices due to an oil price shock? Use the model to discuss each case separately. Can the central bank avoid a drop in output and a variation in the price level?

Q: Q1. The following question is about the basic AS-AD Model: (a) Concisely explain why the AS curve is…

A: Step 1: To examine the relationship between overall price levels and the total output of an economy,…

Q: Show graphically that the less responsive is investment to interest rates, the less effective is…

A: Answer -

Q: Consider a version of the AS/AD framework with o =1,ā = 0,6 = 4, m = 1, and ī = 2%. Suppose that T-1…

A: Lets take AD and AS modelY=α-bm(π-π¯)π=πt-1+v¯Y+οGivenα=0b=4m=1π¯=2%v¯=0.25ο=3%=0.03

Q: Why is it so difficult to "fine-tune" the American economy using discretionary macroeconomic policy?…

A: In macroeconomics, the discretionary policy is described as an economic policy that is decided by…

Q: Use the AD-AS model to illustrate what the impact of an expansionary monetary policyinstrument  will…

A: Monetary policy refers to the central bank’s policy that bring necessary change in the different…

Q: Why do temporary negative supply shocks pose adilemma for policymakers?

A: Dilemma refers to the condition when an individual faces difficulty in making an efficient decision…

Q: By using appropriate diagrams, discuss the role of the monetary and fiscal policies in the New…

A: The sticky-price model of the upward sloping short-run AS (aggregate supply) curve is based on the…

Q: In the model SIM of chapter 3 of the book of Godley, Wynne, and Marc Lavoie. 2012. Monetary…

A: To simulate the effect of an increase in government expenditure in the SIM model with simple…

Q: Aggregate Supply, Aggregate Demand, and Long-Run Equilibrium Please list one event that impacts AD…

A: "Since you have posted a question with multiple sub-parts, we shall answer the first three sub-parts…

Q: sing the AD/AS Model, construct 2 graphs that show how higher rates of inflation can occur. Explain…

A: inflation is the rise in general price level of goods and services over period of time. It happens…

Q: sing the dynamic AD-AS analysis, show the effect of contractionary monetary policy.

A: Controlling an economy's money supply and the routes via which new money is provided is known as…

Q: How is long-term growth illustrated in an AD/AS model? Draw a graph of the AD/AS model and show the…

A: Macroeconomic research provides a comprehensive forecast for the fiscal and monetary landscapes of…

Q: Suppose that the government wants to raise investment but keep output constant. According to the…

A: Investments refer to the amount of money or capital stocks that people give to a firm or institution…

Q: What are supply shocks? Why are policy choices hard when there are negative supply shocks? Would you…

A: A supply shock occurs when an unexpected event alters the supply of goods or commodities, resulting…

Q: The AS/AD (Aggregate Supply/Aggregate Demand) model is used for policymaking. Using the AS/AD model,…

A: The MPC can implement an expanding monetary policy, such as a reduction in the repo rate, which…

Q: Suppose the Central bank announces today a change in monetary policy: it is increasing target…

A: People will create their expectations about what will be happening in the future based on what has…

Q: Suppose the target rate of unemployment is 5 percent but the actual rate of unemployment is 2…

A: Unemployment rate: - it is the percentage of people out of the total labor force who are able and…

Q: please graph the following scenerios in the goods and services markets (AD/AS model) and provide an…

A: Aggregate demand: It is the sum total of demand for all the goods and services that are demanded in…

Q: Inflation in Theoretica is currently below the target range of its central bank. What does this tell…

A: The difference between actual output and potential output is the output gap.

Q: How might the response of a central bank to an external inflation shock depend upon the way that the…

A: Inflation Shock:- An inflationary shock occurs if commodity prices rise unexpectedly (e.g., as a…

Q: Refer to the Reserve Bank news release below. Use the AD/AS model to answer how each of the economic…

A: Aggregate demand is the total demand for goods and services in an economy. AD=C+I+G+X-M  AS is the…

Q: Supply-Side Policies: Supply-side policies involve measures to increase the production and and…

A: Government efforts to boost productivity and efficiency in the economy are known as supply-side…

Q: Refer to the Reserve Bank news release below. Use the AD/AS model to answer how each of the economic…

A: Inflation: It refers to the raise in the prices of goods and services. An increase in inflation will…

Q: Consider the Mundell-Fleming Model. In what respects is the Dornbusch model a compromise between the…

A: Also known as the "overshooting model", this work by economist Dornbusch brings together two other…

Q: Suppose that the oil price sharply increased for a while, which increase.Can policymakers do…

A: Policymaker: An approach creator is somebody who makes thoughts and plans, particularly those did by…

Q: Use the Phelps-Friedman model to trace through the effects of a shock involving an increase in the…

A: IS LM model shows the two Market in equilibrium simultaneously  . Goods market and money market . At…

Q: Question 18 Consider an economy characterized by the AS and AD curves in the textbook. Moreover, you…

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Consider the AD/AS model with a constant inflation rate. It is possible that the money supply is…

A: Answer: Due to an increase in the money supply, the interest rate will decrease. As a result, the…

Q: Consider an AD-AS model with AD curve Y−Y* = −ay(n − π*) + ED and AS curve = + 8(Y-Y*) + es with…

A: The total demand associated with all the final goods and services manufactured in an economy is…

Q: In the long run, a change in monetary policy will affect only the aggregate price level. True or…

A: The aggregate price level alludes to the general or total cost of the aggregate labor and products…

Q: Use the AD-AS model, in conjunction with the IS-LM-BP, to explain the supply and demand dynamics of…

A: This will be explained through the present example:  The lockdown due to Covid-19 Crisis has been a…

Q: Prior to the pandemic, economic growth had typically been accompanied by decelerating or declining…

A: ANSWER   The economic growth can be obtained by two ways - Rise in AD or Rise in AS.

Q: Fiscal and Monetary Policies Nowadays, many Central Banks use target inflation in their monetary…

A: Target inflation is achieved by central by setting up a inflation goal and then adjusting its…

Q: if the Fed’s objective is to stabilize output in the short run (using the AD-AS model) how would it…

A: The model of aggregate demand and aggregate supply helps to determine and explain the price level…