Suppose the economy is currently in equilibrium, with unemployment equal to the natural rate, andthat people form expectations rationally. If the Federal Reserve announces that it is going todecrease the money supply, then:the economy will move to a lower price level but remain at potential GDP.the economy will permanently move to a higher level of output and a higher price level.the economy will permanently move to a lower level of output and a lower price level.the economy will move to a higher GDP level but remain at a constant price level.

Unemployment refers to a state at which a person who is actively looking for the work but is unable…

Suppose the economy is currently in equilibri that people form expectations rationally. If th decrease the money supply, then: the economy will move to a lower price level bu the economy will permanently move to a higher the economy will permanently move to a lower the economy will move to a higher GDP level bu

Suppose the economy is currently in equilibri that people form expectations rationally. If th decrease the money supply, then: the economy will move to a lower price level bu the economy will permanently move to a higher the economy will permanently move to a lower the economy will move to a higher GDP level bu

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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We use the following terminology in this part: aggregate income Y and disposable income Ya (= Y –T), consumption function C(Ya), planned investment function I(r), government spending G, and taxation T = tY where t is the marginal tax rate; r% denotes the real interest rate in the economy. (Note, r is in percentage points, e.g. r = 2 means the interest rate is 2%. When doing calculations, the interest rate should not simply be inserted in decimal form. For example, if r = 2 then I(2) = 124 – 2 = 122.) Consider a hypothetical economy where: • C(Ya) = 12 + 0.75 × (Y – T) • I(r) = 124 – 1 × r • G = 120 • t = 20%
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01 10 CO xp 381 In the figure, the economy is at an equilibrium with real GDP of $20 trillion and a price level of 110. As the economy moves toward its ultimate equilibrium, the curve shifts, because 0 0 0 0 0 A. aggregate demand; leftward; the money wage rate rises B. aggregate supply: rightward; the money wage rate falls OC. potential GDP; leftward; the money wage rate falls D. aggregate demand; rightward; the money wage rate falls OE. aggregate supply; leftward; the money wage rate rises 130- 120- 110- 100- Price level (GDP price Index, 2012 = 100) Potential GDP 90- AS AD 19.0 19.5 20.0 20.5 21.0 21.5 22.0 Real GDP (trillions of 2012 dollars) ✓ ✓ 5