If the aggregate price level rises, all else equal, consumers will: need more money to purchase the same basket of goods, which will lead to an increase in the demand for money, in turn pushing up interest rates and hence reducing the quantity of aggregate output demanded via a decrease in investment demand. demand less aggregate output at all price levels, resulting in a rightward shift right of the AD curve. find their purchasing power has increased and will purchase more goods and services, leading to an increase in aggregate output demanded. need less money to purchase the same basket of goods, which will lead to a decrease in the demand for money, in turn pushing down interest rates and hence increasing the quantity of aggregate output demanded via an increase in investment demand.

The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $600 billion. Suppose a stock market boom increases household wealth and causes consumers to spend more. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the stock market boom. 240 AS 200 AD 160 AS 120 80 AD 40 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to the price level people expected and the quantity of output to the natural level of output. The stock market boom will cause the unemployment rate to the natural rate of unemployment in the short run. Again, the following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $600 billion, before the increase in consumption spending associated with…

Which of the following could shift the DAD (dynamic AD) curve to the right, all else equal? an increase in imports a higher real interest rate the Fed raising its target inflation rate a decrease in home purchases

If the intersection of AD and SRAS occurs at $21 trillion GDP but full employment GDP (LRAS) is at $22 trillion GDP, which of the following policy choices would help move the economy toward full employment? a) Lowering income taxes and payroll taxes for all employees. b) All of the choices would help increase AD and bring the economy closer to full employment. c) increasing the money supply to lower interest rates. d) Increases government spending on infrastructure. e) Sending out stimulus checks to everyone earning less than $100,000 per year.

The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $300 billion. Suppose households suddenly begin to spend less and save more in order to increase saving for retirement. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the sharp increase in saving. PRICE LEVEL 240 200 160 120 8 40 0 0 100 200 300 400 OUTPUT (Billions of dollars) AS AD 500 600 AD AS A In the short run, the decrease in consumption spending associated with the increase in saving causes the price level to price level people expected and the quantity of output to the unemployment rate to the the natural level of output. The sharp increase in saving will cause the natural rate of unemployment in the short run.

Suppose that the production function for the economy is given by: Y = AL/3K/3 Suppose that this economy has 1,000 units of Labour, and 125 units of capital, and TFP (A) is equal to 10. The Short-Run Aggregate Supply Curve (AS) here is given by: Y = 5p And when we consider the AEF at a price level of $1,400, the main components of it (C, I, & G) are given by (we are assuming a closed economy NX = 0): C = 300 + 0.8Y I = 300 G = 200 1. What is potential GDP in this question (Y*)? Show your work. Suppose also that for any $10 decrease in price, desired consumption will increase by $5. 2. Write down the equation for the Aggregate Demand Curve (AD) in the form of Y = a + bp. Show your work. 3. What is the current Short-Run Equilibrium value for Real GDP (Y) and the price level (p)? Show your work. 4. Draw the AD, AS, and LRAS curves. Label all x-intercepts and y-intercepts. Are we currently in an Inflationary Gap, Recessionary Gap, or in Long-Run Equilibrium? How do you know?

Question #4. Individual income taxes directly affect personal disposable incomes which in turn affect the domestic demand for goods and services. Production costs depend substantially on oil prices. Market expectations are: (1) income taxes in the U.S. will decline and (2) oil prices will remain relatively unchanged.   Using market expectations, what do you expect the U.S. output and prices next year? Assume we are moving from the old equilibrium to a new equilibrium.  Please state clearly your assumptions and include a graph to support your answer.

Consider a closed economy, where wages are sticky in the short run. The consumption function is C = co+c₁(Y-T), where the marginal propensity to consume c₁ is equal to 0.8. Initially the economy is in equilibrium at Y = Y* and P = Pº, where Pe is the price level that was expected when agents agreed their fixed nominal wage contracts. The short-run aggregate supply curve (SRAS) is horizontal. Suddenly the government increases government spending G by $200. For the following questions, if you think a variable goes up by (say) $50, just enter 50 as your answer. If you think a variable goes down by $50, enter -50 as your answer. If you think a variable doesn't change at all, enter 0 as your answer. 10. By how much will output Y change in the short run? 11. By how much will consumption C change in the short run? 12. By how much will investment I change in the short run? 13. By how much will output Y change (compared to its initial level before the change in G) in the long run, after wage…

If membership falls in labor unions and unions become less popular, then: production costs will increase, SRAS will shift to the left, decreasing equilibrium GDP and increasing the aggregate price level. production costs will fall, SRAS will shift to the right, increasing equilibrium GDP and lowering the aggregate price level. production costs will not change, AD will shift to the right, increasing equilibrium GDP and aggregate price level. production costs will fall, there will be a downward movement along SRAS, equilibrium GDP will increase and aggregate price level will fall.

The graph in Figure I presents the annual GDP growth rate of the United States economy since the first quarter of 2004, while the graphs in Figure II represent three different scenarios of the relationship. between aggregate demand and supply that reflect different situations of economic growth. Answer the following questions in detail. Using the shifts in the aggregate demand curve in each of the three graphs in Figure II, explain the function of aggregate consumption and investment. Explain in detail what is happening in Graph A in Figure II and, after examining the data in the graph in Figure I, identify in what period of time said situation is occurring.