ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Explain the dynamic effect by taking "Oil
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- Brent, the international oil marker, hit US$130 a barrel on 8th March 2022. The oil price is close to 90 per cent above their level at the same point in time last year. Suppose that the rise in oil price is permanent. It creates an inflation shock and, at the same time, reduces potential output. With the aid of AD-AS model, show the difference in the effects of the oil price increase on output and the inflation rate in the long run if the government does not engage in stabilization policy and if the government does engage in stabilization policy to keep the inflation level low. Please elaborate your answer verbally.arrow_forwardHow the Ukrainian war had an impact on the inflation in Europe (gas and food)? Provide a comprehensive report on how war has led to inflation hike.arrow_forwardDescribe how different parts of the economy may have experienced shifts and changes in supply and demand. Provide at least 4 examples.arrow_forward
- Which of the following is likely to occur if an increase in legal immigrants significantly reduces the wages of workers, ceteris paribus? A. Aggregate supply will decrease (shift left). B. Aggregate supply will increase (shift right). C. Aggregate demand will increase (shift right). D. Aggregate demand will decrease (shift left).arrow_forwardWhy is price “stickiness” or “rigidity” important for understanding macroeconomic adjustments? How would policy recommendations be different if prices adjusted immediately?arrow_forwardWhat happened to the demand for rental cars during the first half of 2021? I.e., was there a positive or negative demand shock? What caused the shock?arrow_forward
- In Figure 2 above, what are the factors that may cause the aggregate demand to shift from AD to AD1? What is the difference between demand-pull inflation, cost-push inflation and recession?arrow_forwardFor each of the following, use an AD-AS diagram to show the short-run and long-run effects on output and inflation. Assume the economy starts in long-run equilibrium. Instructions: In all the diagrams below, click and drag the appropriate curve or curves to show the short-run changes on the left side and long-run changes (which must also include the short-run changes) on the right side. d. A sharp drop in oil prices (assume the change in oil prices is permanent and no policy actions are taken). Inflation rate Short-Run Effects LRAS Output Y SRAS ADO Inflation rate Long-Run Effects LRAS Output Y SRAS ADarrow_forwardWe use the following terminology in this part: aggregate income Y and disposable income Ya (= Y –T), consumption function C(Ya), planned investment function I(r), government spending G, and taxation T = tY where t is the marginal tax rate; r% denotes the real interest rate in the economy. (Note, r is in percentage points, e.g. r = 2 means the interest rate is 2%. When doing calculations, the interest rate should not simply be inserted in decimal form. For example, if r = 2 then I(2) = 124 – 2 = 122.) Consider a hypothetical economy where: • C(Ya) = 12 + 0.75 × (Y – T) • I(r) = 124 – 1 × r • G = 120 • t = 20%arrow_forward
- Graph an economy which suffers a negative supply shock. How does this effect inflation (increase/decrease) and unemployment (increase/decrease)? What is the name for this situation? What is the relationship between unemployment and inflation as the economy heads into a recession normally? How about the relationship as the economy moves to the peak of the business cycle?arrow_forwardThe Central Bank of Indonesia sees the potential of the latest credit card technology to facilitate transactions in the community. Then, the central bank change their regulations to decide to expand the availability of credit cards so that people have to hold less cash. If the Bank Central does not respond to this event, what will happen to the price level?arrow_forwardWithout prices to coordinate supply to demand, technocrats and central planners must use statistics. What is one thing that prices capture that statistics cannot? Prices capture quantitative information O Prices capture macroeconomic fluctuations O Prices capture the historical movements of supply and demand Prices capture future expectationsarrow_forward
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