Suppose pessimism about the future makes household consumption plummet. How would this affect the AD-AS model in the short-run, and what monetary policy could be implemented to stabilize this fluctuation? Illistrate on a diagram if possible.

Q: Why do temporary negative supply shocks pose adilemma for policymakers?

A: Dilemma refers to the condition when an individual faces difficulty in making an efficient decision…

Q: By using appropriate diagrams, discuss the role of the monetary and fiscal policies in the New…

A: The sticky-price model of the upward sloping short-run AS (aggregate supply) curve is based on the…

Q: How does an autonomous tightening or easing ofmonetary policy by the Fed affect the aggregate…

A: Aggregate Demand The aggregate demand (AD) is given by the sum of consumption demand, investment…

Q: Using the AD-AS model, discuss the money neutrality in the short-run and in the long-run.

A: The neutrality of money is a macroeconomic concept that asserts that the changes in the money supply…

Q: Explain the liquidity trap. Do you think that the theory accurately describes the events after the…

A: Modern economics is the social study of an economy's resource management and efficient allocation.…

Q: A central bank carries out a contractionary open market operation. * Use the Theory of Liquidity…

A: Monetary Policy refers to the policy that the central bank of a country undertakes to influence the…

Q: Suppose that the government wants to raise investment but keep output constant. According to the…

A: Investments refer to the amount of money or capital stocks that people give to a firm or institution…

Q: Oil prices have fallen quite substantially since 2008.  Moreover, the deveopment of new sources of…

A: After the 2008 global economic crises, the United States landscape has shifted too dramatically…

Q: What is, according to Keynes, the role of expectations in stabilizing or destabilizing the aggregate…

A: Macroeconomics is a part of economics that deals with production, decision and allocation concerning…

Q: Why might economists in the United States fear that Stagflation could develop in 2022?

A: Stagflation is defined as a situation "marked by weak economic development and relatively high…

Q: A Central Bank is said to have a more hawkish stance when it reacts more aggressively against…

A: A central bank becomes more hawkish when it supports the increase in interest rate in order to fight…

Q: Explain if, and why, you agree, or do not agree, with the following statement [when answering,…

A: Increase in G will increase budget deficit, to finance which, government will resort to borrowing…

Q: in 2012 japan prime minister shinzo Abi decided to increase money supply from 120 to 240 trillion in…

A: Abenomic: Introduction of this policy has been a great success for Japan. It was launched in the…

Q: Suppose the target rate of unemployment is 5 percent but the actual rate of unemployment is 2…

A: Unemployment rate: - it is the percentage of people out of the total labor force who are able and…

Q: Refer to the diagram to the right. Suppose the economy is in a recession and the Fed pursues an…

A: The goods and services produced in the economy and their total demand are known as aggregate demand.…

Q: On Tuesday, Nov. 30 2021, Jerome Powell admits that it is probably a good time for the central bank…

A: We know the in long term economy achieves full employment level where Aggregate Demand is Equal to…

Q: Inflation in Theoretica is currently below the target range of its central bank. What does this tell…

A: The difference between actual output and potential output is the output gap.

Q: According to Keynes, what are the three reasons individuals hold money? Provide a brief explanation…

A: As per Keynes, there are three reasons an individual holds, namely, the transaction motive, the…

Q: Suppose that the Bank of Canada creates a new electronic Loonie. This new system allows everyone in…

A: The IS curve represents various combinations of interest and income along which the product market…

Q: Assume the Fed buys bonds. Illustrate what you anticipate would happen to the Money Market graph,…

A: By altering the money supply, the Fed can impact market interest rates. The interception point will…

Q: An economy is currently at point A in the graph below. How would this economy return to equilibrium…

A: The government set policies to stabilize the economy. The major policies are fiscal and monetary…

Q: a. What effect does this likely have on the economy? The price level falls and output rises. The…

A: Moore's Law is an observation and prediction made by Gordon Moore, co-founder of Intel, in 1965. It…

Q: Consider the AD/AS model with a constant inflation rate. It is possible that the money supply is…

A: Answer: Due to an increase in the money supply, the interest rate will decrease. As a result, the…

Q: what is the impact of a contractionary policy on the U.S. economy from a new keynesian point of…

A: The Taylor rule is an interest rate projection model propounded by famous economist John Taylor in…

Q: Assume an economy is currently operating at point A. Illustrate using the IS-LM model how the policy…

A: Simultaneous equilibrium in both goods and money market is determined by the intersection of the IS…

Q: Why is there a proportional relationship between the money supply and the price level?

A: The money supply refers to all of a country's currency and other liquid assets on the measurement…

Q: Assume the economy is initially at the full employment level of real GDP. If there is a decrease in…

A: Aggregate demand:Aggregate Demand is when the total number of consumers have the desire to buy…

Q: Prior to the pandemic, economic growth had typically been accompanied by decelerating or declining…

A: ANSWER   The economic growth can be obtained by two ways - Rise in AD or Rise in AS.

Q: How can the real business cycle model explain the behavior of the money supply over the business…

A: The measure that depicts decline and growth in the nation that is being measured by its gross…

Q: monetary works in a period of recession

A: Recession refers to significant decline in economic activities, the economic measures and growth as…

Q: Elaborate the differences between the disinflation strategies proposed by Keynesians and classical.…

A: Inflation   refers to the  consistent rise in general price level over period of time . Whereas…

Q: if the Fed’s objective is to stabilize output in the short run (using the AD-AS model) how would it…

A: The model of aggregate demand and aggregate supply helps to determine and explain the price level…

Q: Concerning the Great Depression; the stock market crash of 1929, collapse of the banking system, and…

A: The event of the Great Depression occurs in 1929, the stock market crash of 1929, the collapse of…

Q: Draw a AD/AS graph with three curves that shows high inflation

A: In macroeconomics, the production and allocation decisions regarding an entire country or economy…

Q: Consider the monetary intertemporal model. Payments can be made with either credit cards or with…

A: Introduction of a tax on credit card services will affect the monetary intertemporal model in the…

Q: The monetarists/new classical economists argue that, "given that the economy is inherently stable,

A: New Classical/ Monetarists do not believe in the government intervention in correcting the economic…

Q: Critically discuss the short-run and long-run effects on output and the price level using the AD-AS…

A: The long run may be a amount of your time during which all factors of production and prices area…

Q: (a) Graph an AD/AS model with sticky wages and show graphically and ex- plain with words how the…

A: The AD/AS model, the fundamental tool in macroeconomics, employs the relationship between the two…

Q: Examine the effectiveness of monetary policy (expansionary and contractionary) on Price and output…

A: The AD and AS model determines the equilibrium level of output and price where AD and AS intersects…