Consider an economy described by the Keynesian version of the AD-AS model with imperfect competition in a condition of full employment. To reduce the Pareto inefficiency, the government increases public transfers. What happens to the levels of output and prices in the short run? And in the long run?
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- 9. Economic fluctuations II The following graph shows the aggregate demand curve (AD), the short-run aggregate supply curve (AS), and the long-run aggregate supply curve (LRAS) for a hypothetical economy. Initially, the expected price level equals the actual price level, and the economy experiences long-run equilibrium at a natural level of output of $110 billion. Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs of producing goods and services. Use the graph to help you answer the questions about the short-run and long-run effects of the increase in production costs that follow. (Note: You will not be graded on any adjustments made to the graph.) Hint: For simplicity, ignore any possible impact of the severe weather on the natural level of output. LEVEL 130 125 120 115 110 LRAS AS AD AS ?1. When the federal government engages in COVID-19 fiscal stimulus such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the American Rescue Plan Act this will affect the AD-AS model by: Group of answer choices a. Decreasing aggregate demand (AD). b. Increasing aggregate demand (AD). c. Decreasing aggregate supply (AS). d. Increasing aggregate supply (AS).In the AD-AS model with an upward-sloping AS-curve, a decrease in oil prices will Multiple Choice O O O increase prices and output in the long run decrease prices and increase output in the short run increase prices and decrease output in the long run decrease prices and output in the short run decrease prices but have no effect on output in the short run
- A neoclassical economist and a Keynesian economist are studying the economy of Vineland. It appeals that Vineland is beginning to experience a mild recession with a decrease in aggregate demand. Which of these two economists would likely advocate that the government of Vineland take active measures to reverse this decline in aggregate demand? Why?Use the graph to answer the question that follows. O Price level W X Y N LRAS W AD1 N At which point on the graph is the economy producing output in equilibrium at its maximum sustainable potential? SRAS AD2 AD3 Real GDPconomic fluctuations II following graph shows the short-run aggregate supply curve (AS), the aggregate demand curve (AD), and the long-run aggregate supply curve RAS) for a hypothetical economy. Initially, the expected price level is equal to the actual price level, and the economy is in long-run equilibrium at natural level of output, $120 billion. ppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs of oducing goods and services in this economy. me the graph to help you answer the questions about the short-run and long-run effects of the increase in production costs that follow. (Note: You all not be graded on any adjustments made to the graph.) int: For simplicity, ignore any possible impact of the severe weather on the natural level of output. PRICE LEVEL 140 135 130 125 115 110 100 100 105 110 LRAS 115 120 125 OUTPUT (Billions of dollars) AS AD 130 135 140 AD AS LRAS
- Use the following diagram to answer this question Price level or GDP deflator Ro 41- SRAS₂ ----- AD₂ SRAS, SRAS, -11110 AD₁ AD₁ Output or RGDP Suppose the short-run macroeconomic equilibrium is at point A. In the short run, an open market sale would move the equilibrium to: O A. point E OB. point C O C. point H O D. point B 104. AD; SRAS; LRAS; Short-run equilibrium; Long-run equilibrium; Recessionary gap and Inflationary gap. Consider the diagram below, if the economy is in an inflationary gap, where is it located with respect to both the institutional PPF and the physical PPF? KB LRAS Physical PPF SRAS, Institutional PPF •D AD. Real GDP Good X Real GDP Price Level All Oth er GoodsFor each of the three theories for the upward slopeof the short-run aggregate.supply curve, carefullyexplain the following:aA how the econom}' recovers from a recession andreturns to its long-run equilibrium without anypolicy interventionb. what determines the speed of that recovery
- Consider a one-period economy which experiences the destruction of some of the nation’s capital stock (say through a hurricane is de- stroyed). How should this effect equilibrium, consumption, output and labor supply? Now, let’s say the government tries to offset some of the declines in capital on output and hours worked by increasing govern- ment spending. What is the likely outcome of this policy intervention in terms of consumption? In our model, the affects of changes on wages are ambiguous because the income and substitution effects move in opposite directions. How do (many) macroeconomists deal with this ambiguity in terms of study- ing business cycle? How do economists resolve this ambiguity when studying long term economic development? Consider an economy with a straight line PPF. Show how an increase in government spending paid for by an increase in lump sum labor taxes affects outcomes. Do the same for an increase in government spending financed by a proportional income…Describe how different parts of the economy may have experienced shifts and changes in supply and demand. Provide at least 4 examples.Let's assume that the economy of a country is experiencing sticky wages and sticky prices. One of these four answers describes what happens to the economy in the immediate term after a reduction in AD. Which one? Price $100 $70 250 900 1250 Quantity S D₁ Do O None of the other answers O The economy will remain at the original equilibrium levels of price and output. O The price will drop to $70 and the equilibrium quantity will be $900. O The economy will produce at the original equilibrium price, but quantity demanded will drop, creating a surplus of 1,000 units.