QUESTION B2 The figure below depicts aggregate demand and aggregate supply in the nation of Pacifica in 2019. Long-Run AS Short-Run AS AD Real GDP At the beginning of 2020, a wave of business optimism led producers to sharply increase their planned investment expenditure. a What effect, if any, will this increased investment expenditure have in the short-run on the Aggregate Demand curve? What effect, if any, will it have on the Short-Run Aggregate Supply curve? b. After the increased investment expenditure, will short-run equilibrium real GDP be above or below potential GDP? How do you know? The president of Pacifica is concerned about the effect of this new investment expenditure on the economy, and she wishes to use monetary policy to move equilibrium GDP back toward potential GDP. (For the remainder of the question, assume that the Pacifica Central Bank is Pacifica's version of the United States Federal Reserve, that Pacifica's banking and financial systems work exactly like the United States' banking and financial systems, and that Pacifica's currency is called the Pacifica dollar (P$).) c. Which one of the following policies would help the president achieve her aim? Direct the Pacifica Central Bank to purchase P$1 million of Pacifica Treasury Bills i. ii. Direct the Pacifica Central Bank to sell P$1 million of Pacifica Treasury Bills agregate Price Level
QUESTION B2 The figure below depicts aggregate demand and aggregate supply in the nation of Pacifica in 2019. Long-Run AS Short-Run AS AD Real GDP At the beginning of 2020, a wave of business optimism led producers to sharply increase their planned investment expenditure. a What effect, if any, will this increased investment expenditure have in the short-run on the Aggregate Demand curve? What effect, if any, will it have on the Short-Run Aggregate Supply curve? b. After the increased investment expenditure, will short-run equilibrium real GDP be above or below potential GDP? How do you know? The president of Pacifica is concerned about the effect of this new investment expenditure on the economy, and she wishes to use monetary policy to move equilibrium GDP back toward potential GDP. (For the remainder of the question, assume that the Pacifica Central Bank is Pacifica's version of the United States Federal Reserve, that Pacifica's banking and financial systems work exactly like the United States' banking and financial systems, and that Pacifica's currency is called the Pacifica dollar (P$).) c. Which one of the following policies would help the president achieve her aim? Direct the Pacifica Central Bank to purchase P$1 million of Pacifica Treasury Bills i. ii. Direct the Pacifica Central Bank to sell P$1 million of Pacifica Treasury Bills agregate Price Level
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:5:09 C A & 1 & P M -
32%
Page 8 of 5
QUESTION B2
The figure below depicts aggregate demand and aggregate supply in the nation of Pacifica in
2019.
Long-Run
AS
Short-Run
AS
AD
Real GDP
At the beginning of 2020, a wave of business optimism led producers to sharply increase their
planned investment expenditure.
a. What effect, if any, will this increased investment expenditure have in the short-run on
the Aggregate Demand curve? What effect, if any, will it have on the Short-Run
Aggregate Supply curve?
b. After the increased investment expenditure, will short-run equilibrium real GDP be above
or below potential GDP? How do you know?
The president of Pacifica is concerned about the effect of this new investment expenditure on the
economy, and she wishes to use monetary policy to move equilibrium GDP back toward
potential GDP. (For the remainder of the question, assume that the Pacifica Central Bank is
Pacifica's version of the United States Federal Reserve, that Pacifica's banking and financial
systems work exactly like the United States' banking and financial systems, and that Pacifica's
currency is called the Pacifica dollar (P$).)
c. Which one of the following policies would help the president achieve her aim?
Direct the Pacifica Central Bank to purchase P$1 million of Pacifica Treasury
Bills
i.
ii.
Direct the Pacifica Central Bank to sell P$1 million of Pacifica Treasury Bills
Page 9 of 5
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education