(f) Now assume instead that the government and the Federal Reserve take no policy action in response to the recession. (i) In the long run, will the short-run aggregate supply increase, decrease, or remain unchanged? Explain. (ii) In the long run will the short-run Phillips Curve shift right, left or remain unchanged? Explain.
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Assume that the United States economy is currently in a recession in a short-run equilibrium.
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- Assume that a country's economy is in equilibrium. a) () Using a correctly labeled AD/AS graph, show how an increase in the price of gasoline, an important input of production, will affect the following in the short run. (i) Real output :- (ii) Price level-Using a correctly labeled graph, show the same effect on the Phillips curve. () Central bank of the country responds to the higher price of oil by increasing the money supply. (i ) ()Explain the process by which the increase in the money supply will affect the aggregate demand in the short run. (ii) (Indicate on the AD/AS graph, how the increase in the money supply will affect real output and the price level. d) () Now assume that instead of using monetary policy in response to the gasoline price increase, the government reduces business taxes, which results in lower production costs. Using a new correctly labeled graph, show the effect of the reduction in business taxes on the following. (i) () Real output - (ii) () Price levele) (…Which of the following points are on the short-run Phillips curve and the aggregate supply curve in 2021? A. Point B is at (6, 4) on the SRPC and at (10.1, 104) on the AS curve. B. Point C is at (6, 4) on the SRPC and at (106, 10.2) on the AS curve. C. Point D is at (2, 110) on the SRPC and at (10.4, 110) on the AS curve. D. Point A is at (8, 102) on the SRPC and at (10.0, 4) on the AS curve. Screenshot attached thanks1. Drought In South Africa destroyed farm crops and drove up the price of food. What Is the effect on the short-run trade-off between inflation and unemployment? 2. Give an example of a favourable and unfavourable shock to the aggregate supply. Use the model of aggregate demand (AD) and aggregate supply (AS) to explain the effects of such shocks. How do these shocks affect the AD-AS curves?
- b) Now suppose that a stock market crash causes aggregate demand to fall. Use your diagram to show what happens to output and the price level in the short-run . What happens to the unemployment rate? C) Use the sticky-warge theory of aggregate supply to explain what will happen to output and the price level in the long run(assuming no change in policy).What role does the expected price level play in this adjustment? Be sure to illustrate your analysis in a graph.a) Are the effects of an increase in aggregate demand in the AD-AS model consistent with the Phillips curve? Explain. b. Discuss the factors determining the slope of the short-run Phillips curve. Is the linear shape appropriate? Why or why not?Suppose the Phillips curve is and the Aggregate Demand curve is Tt = Tt1+3ytot Yt = at 5(πt - 0.02) where at = Ot = 0 in the steady state. (a) Calculate the steady state values of output and inflation in this economy. (b) Calculate the short- and long-run responses of the economy to the following shocks (use a table to report your answers, as well as show them graphically on the AD-AS graph, as well as plot inflation and output against time): (1) A one-time decrease in ot to -0.05. (2) A one-time increase in at to 0.05 (at returns to 0 thereafter). (3) A permanent decrease in the Fed's inflation target from 0.02 to 0.
- "As the economy moves upward along its aggregate supply curve, the economy also moves upward along its short-run Phillips curve." Is the previous statement correct or incorrect?How do new Keynesian ideas about price setting and inflation expectations affect the short-run aggregate supply curve? Explain.As described in the chapter, the Federal Reserve in 2008 faced a decrease in aggregate demand caused by the housing and financial crises and a decrease in short-run aggregate supply caused by rising commodity prices. Starting from a long-run equilibrium, illustrate the effects of these two changes on aggregate supply and aggregate demand on the following graph. Then, on the subsequent graph, indicate what happens on a Phillips-curve diagram. LRAS Aggregate Supply Aggregate Demand XE 0 LRPC SRPC Unemployment Rate Price Level Inflation Rate Quantity of Output Aggregate Demand Equilibrium output will rise. The effect on the inflation rate will be ambiguous. The price level will fall. Unemployment will rise. Aggregate Supply LRAS Long-Run Equilibrium SRPC LRPC Long-Run Equilibrium (?) Which of the following is true as a result of the two changes in aggregate demand and aggregate supply? (Note: Do not consider the magnitudes of the shifts given on the preceding graphs. Think only about the…
- The economy in Country X is in a recession, with real gross domestic product (GDP) $100 billion below full-employment output. (a) Draw one correctly labeled graph of the short-run and long-run Phillips curves, labeling the current equilibrium point A. (b) Assume that the government increases spending by $20 billion to stimulate economic activity. Assume that the marginal propensity to save is 0.25. Calculate the maximum total change in real GDP that could occur following the $20 billion increase in government spending. (c) On your graph in part (a), label the new equilibrium point B as a result of the increase in government spending. (d) Had the government lowered personal income taxes by $20 billion instead of increasing spending by $20 billion, would the maximum total change in real GDP be greater than, smaller than, or the same as the one calculated in part (b) ? Explain.Refer to the diagram. The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1. In the long run, demand-pull inflation is best shown as: A) a move from a to d. B) a shift of aggregate demand from AD1 to AD2 followed by a shift of aggregate supply from AS1 to AS2. C) a shift of aggregate supply from AS1 to AS2 followed by a shift of aggregate demand from AD1 to AD2. D) a move from d to b to a.As described in the chapter, the Federal Reserve in 2008 faced a decrease in aggregate demand caused by the housing and financial crises and a decrease in short-run aggregate supply caused by rising commodity prices. 1. Starting from a long-run equilibrium, illustrate the effects of these two changes on aggregate supply and aggregate demand on the following graph. Then, on the subsequent graph, indicate what happens on a Phillips-curve diagram. (Please use the images attached.) 2. Which of the following is true as a result of the two changes in aggregate demand and aggregate supply? (Note: Do not consider the magnitudes of the shifts given on the preceding graphs. Think only about the directions of the shifts.) Check all that apply. -Equilibrium output will rise. -The price level will fall. -Unemployment will rise. -The effect on the inflation rate will be ambiguous.