Suppose that workers and firms perfectly forecast inflation, so that the real wage remains unchanged as the price level rises over time. Prices and wages rise at the same rate, which implies that the real wage stays constant. The following graph shows the aggregate demand curve (AD) in an economy in long-run equilibrium. Assume the natural rate of unemployment is 5%, and potential output is $40 trillion. Use the orange points (square symbols) to draw the aggregate supply curve in this case, and use the black point (X symbol) to mark the equilibrium price level and real GDP. PRICE LEVEL 180 160 140 120 100 80 0 20 40 60 REAL GDP (Trillions of Dollars) 80 AD 100 Aggregate Supply Equilibrium ? On the following graph, use the purple points (diamond symbols) to draw the short-run Phillips curve for this economy when inflation is perfectly

Suppose that workers and firms perfectly forecast inflation, so that the real wage remains unchanged as the price level rises over time. Prices and wages rise at the same rate, which implies that the real wage stays constant. The following graph shows the aggregate demand curve (AD) in an economy in long-run equilibrium. Assume the natural rate of unemployment is 5%, and potential output is $40 trillion. Use the orange points (square symbols) to draw the aggregate supply curve in this case, and use the black point (X symbol) to mark the equilibrium price level and real GDP. PRICE LEVEL 180 160 140 120 100 80 0 20 40 60 REAL GDP (Trillions of Dollars) 80 AD 100 Aggregate Supply Equilibrium ? On the following graph, use the purple points (diamond symbols) to draw the short-run Phillips curve for this economy when inflation is perfectly

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Easy Beginner Economics Question:
Explain different approaches – Neo Keynesian, Friedman, and Lucas – of Philips curve in the short – run and Phillips curve in the long – run
Under adaptive expectations theory, people persistently: underestimate inflation when it is slowing down. Ooverestimate inflation when it is accelerating. underestimate inflation when it is accelerating. adapt to the prevailing inflation rate.
An implication of the Rational Expectation Theory is that A) rational expectations of inflation are reformulated sooner than adaptive expectations of inflation. B) changes in how the inflation variable moves over time will not affect how expectations are formed. C) people can always accurately assess the actual rate of inflation. D) people always underestimate the future rate of inflation. E) people always overestimate the future rate of inflation.
Neoclassical economics does NOT argue _______ Question 1 options: GDP is determined by supply factors such as resources and technology, not aggregate demand government regulation is generally good for the overall economy the market system has the self-adjusting mechanism that fixes unemployment and recession in the long run as long as wages, prices, and interest rates are flexible raising minimum wage generally creates unemployment
A) Suppose that an economy has the Phillips curve π = π-1 – 0.5(u − 0.06). 1) Graph the short-run and long-run relationships between inflation and unemployment. 2)How much cyclical unemployment is necessary to reduce inflation by 3 percentage points? Using Okun’s law, compute the sacrifice ratio. B)Mathematically prove that balanced budget multiplier is one. Interpret it C)Explain destabilizing effect of deflation which supports the money hypothesis of great depression. Use graph where feasible. D)“The steeper is the LM curve, the more effective is the monetary policy” Do you agree with the statement. Graphically explain.
What is meant by the Phillips Curve “tradeoff”? Group of answer choices Demand pull inflation results in lower unemployment. High inflation results in high unemployment. High unemployment eventually returns to normal. High inflation eventually slows down.
Economics What does the Taylor rule imply that policymakers should do to the cash rate under the following scenarios? (a) ( Unemployment drops due to an economic boom. Then the real GDP increases by 2% further above its potential level. (b) * ks) An oil price shock causes the inflation rate to rise by 2% and output to fall by 1%.
Analysis of the Australian experience in reducing the inflation rate in the late 1980s suggests which of the following? Select one: a. Inflation can be reduced without a recession. b. Credibility plays no role in the macroeconomic effects of a disinflation policy. c. The sacrifice ratio showed decreasing gains over time. d. All of the above. e. None of the above.
Please select correct option and explain it.
A. Illustrate and explain the impact that changes in the money supply have in the economy through a neoclassical perspective. B. Illustrate and explain the impact that changes in the money supply have in the economy through a Keynesian perspective.
Which of the following conditions differentiate Marx's analysis of surplus value the the neoclassical theory? Group of answer choices A. All of these B. Commodities carry a certain part of the labor time in Marxian theory whereas value comes from psychological preferences of consumers in neoclassical theory. C. Profit rate is not a central variable of focus in neoclassical theory. D. Surplus value in Marxian theory is based on accumulated rents, while neoclassical theory does not use rents as a measure of surplus value.