Below is an aggregate demand and supply diagram. Suppose the economy starts at point C. If the Fed decides to increase the money supply, the economy will move from C to to A in the long run. Oto B in the long run. Oback to C in the long run. to D in the long run.
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- Suppose an economy is in long-run equilibrium.a. Use the model of aggregate demand andaggregate supply to illustrate the initialequilibrium (call it point A). Be sure to includeboth short-run aggregate supply and long-runaggregate supply.b. The central bank raises the money supply by5 percent. Use your diagram to show whathappens to output and the price level as theeconomy moves from the initial equilibrium to thenew short-run equilibrium (call it point B).c. Now show the new long-run equilibrium (call itpoint C). What causes the economy to move frompoint B to point C?d. According to the sticky-wage theory of aggregatesupply, how do nominal wages at point Acompare with nominal wages at point B? How donominal wages at point A compare with nominalwages at point C?e. According to the sticky-wage theory of aggregatesupply, how do real wages at point A comparewith real wages at point B? How do real wages atpoint A compare with real wages at point C?f. Judging by the impact of the money…Suppose that changes in bank regulations expand theavailability of credit cards so that people can holdless cash.a. How does this event affect the demand formoney?b. If the Fed does not respond to this event, what willhappen to the price level?c. If the Fed wants to keep the price level stable,what should it do?The Federal Reserve expands the money supply by 5 percent.a. Use the theory of liquidity preference to illustrate in a graph theimpact of this policy on the interest rate.b. Use the model of aggregate demand and aggregate supply to illustratethe impact of this change in the interest rate on output and the pricelevel in the short run.c. When the economy makes the transition from its short-runequilibrium to its new long-run equilibrium, what will happen to theprice level?d. How will this change in the price level affect the demand for moneyand the equilibrium interest rate?e. Is this analysis consistent with the proposition that money has realeffects in the short run but is neutral in the long run?
- Exhibit: Shift in Aggregate Demand LRAS SRAS AD CAD AD In this graph, initially the económy is at point E, with price Po and output Y aggregate demand is given by curve ADo, and SRAS and LRAS represent, respectively. short-run and long-run aggregate supply. Now suppose the Fed decides to reduce the money supply. The economy moves first 4o point in the short-run and then, in the long-run, to point O B: C OCB A:D O D. AIf the Bank of Canada conducts open-market sales, how do the money supply and the aggregate demand change? a. The money supply increases, and aggregate demand shifts left. b. The money supply decreases, and aggregate demand shifts right. c. The money supply decreases, and aggregate demand shifts left. d. The money supply increases, and aggregate demand shifts right.II. Illustrate cach of the following situations with a graph showing IS curve: An increase in government spending a. b. An increase in taxes III. Illustrate each of the following situations with a graph showing Fed rule curve: a. An increase in Z factors b. A decrease in the price level IV. Illustrate each of the following situations with a graph showing AS and AD curve and show the changes in cquilibrium values of the price level and aggregate output: a. An increase in the capital stock and decrease in taxes b. A decrease in energy prices and increase in Government spending
- a. Explain what happens to Money Demand when each of the following occurs: i. incomes rise; ii. the interest rate rises. b. Use the money market to explain why the aggregate demand curve slopes downward. Pa... + ...Next, appose that one of the exgenous factors in Z inereasen Qustion 20 How does the graph with the IS curve and the Fed rale chango Fed rule Fed rule IS Fed rule Fed rule IS IS C. d. Question 21. Does equilibrium output Y increase, decrease, or remain constant? a. increases b. decreases c. remains constant Question 22. Does consumption C increase, decrease, or remain constant? a. increases b. decreases c. remains constant Question 23. Does the interest rate r increase, decrease, or remain constant? a. increases b. decreases c. remains constant Question 24. Does investment I increase, decrease, or remain constant? a. increases b. decreases c. remains constant oblem 4 er questions 25-50 in D2L.Suppose that this year’s money supply is $500 billion,nominal GDP is $10 trillion, and real GDP is $5 trillion.a. What is the price level? What is the velocity ofmoney?b. Suppose that velocity is constant and theeconomy’s output of goods and services rises by5 percent each year. What will happen to nominalGDP and the price level next year if the Fed keepsthe money supply constant?c. What money supply should the Fed set next yearif it wants to keep the price level stable?d. What money supply should the Fed set next yearif it wants inflation of 10 percent?
- Suppose that survey measures of consumer confidence indicate a wave of pessimism is sweeping the country. If policymakers do nothing, what will happen to aggregate demand? What should the Fed do if it wants to stabilize aggregate demand? If the Fed does nothing, what might Congress do to stabilize aggregate demand? Please give me answer in detail as soon as possible plaese dont reject it plaeseAn increase in the nominal interest rate would O a. encourage people to hold smaller money balances. O b. encourage people to hold larger money balances. O c. force the Fed to reduce the money supply. d. cause the real interest rate to decline.The graph shows the aggregate demand curve and the short-run aggregate supply curve in Artica Potential GDP i Intialy $300 Bilion. A drought decreases potential GDP to 1250 bilon. Draw the new Potenal GDP Ine. Label it. Draw a curve to show what happens if the central bank lowers the federal funds rate. Label the curve. Draw a point at the new equilbrum price level and real GOP Label 1. Now starting trom the original equibrium, draw a curve to show what happens if the central bank raises the federal unds rate Label the curve. Drawa point at the hew equilbrium price level and real GOP, Label it 2. To retum the economy to polental GOP, he central bank should _________ the federal tunde rate O A. Raise O B. lower
