Suppose the Fed sells $300 billion in government securities and the reserve ratio is 0.2Calculate the resulting change in the money supply. Be certain to include a negative sign.change in the money supply: !$billionNext, show the impact this open market operation will have on the graph in the short run.10Solow growth curveShort-run aggregate supply875032Aggregate demand0089 10Real GDP growth rate (%)Which statement describes the impact on inflation and real GDP the Fed's policy has in the short run?Inflation decreases and real GDP increases.Inflation decreases and real GDP decreases.

Money supply is the stock of money in circulation in an economy in a given time period.Monetary…

Answered: Suppose the Fed sells $300 billion in…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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12. Assume that an economy operates according to the sticky-wage model. The nominal wage was set to make labor supply and labor demand equal when the expected price level equaled 120 (as measured by the consumer price index). a. Use a graph of the labor market to illustrate what happens to the quantity of labor employed if the actual price level over the time period when wages are stuck equals 110. b. Use a graph of the production function to illustrate how the quantity of output produced changes if the actual price level equals 110 when the expected price level is 120. c. Given the unexpectedly low price level, will this economy be operating above, below, or at the natural rate?
8. Economic fluctuations I 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 sudden and severe contraction in the housing market reduces the value of homes and causes consumers to spend less. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the housing market slump. (2) 240 AS 200 AD 140 AS 120 80 AD 40 200 400 800 1000 1200 OUTPUT (BIlons of dollars) In the short run, the decrease in consumption spending associated with the housing market contraction causes the price level to * the price level people expected and the quantity of output to v the natural level of output. The housing market slump 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…
8. Draw the macroeconomy in equilibrium (snowflake). What happens when aggregate demand increases? Show on graph. Label new short run equilibrium E2. What state is this economy in? a) Give an example of something that could have caused this. b) What happens to GDP and price level? c) In this scenario, what do we call the difference between actual GDP and potential GDP? d) What is the unemployment rate relative to the natural rate? e) How would the economy fix itself? This means market adjustments, not government intervention. Show on graph. Label new equilibrium E3. Briefly explain. US 1 1:3
3. Suppose the Bank of Canada reduces interest rate in the economy. Starting from a long-run equilibrium, use a graph to show what will happen to price level, real GDP, and employment in the short-run. Also, explain how output can return to the natural rate in the long-run without any government intervention.
170 Price 140 level 120 100 D AD5 AD4 AD 3 AD, AD2 3.0 4.0 5.0 6.0 7.0 8.0 Real GDP In Exhibit 20-8, if aggregate demand shifts from AD₁ to AD3, O a. real GDP will increase from $3.0 to $4.0, and the price level will increase from 100 to 140. Ob. real GDP will increase from $3.0 to $7.0, and the price level will increase from 100 to 120. Oc. real GDP will increase from $3.0 to $7.0, and the price level will increase from 100 to 140. Od. real GDP will increase from $3.0 to $4.0, and the price level does not change.
Interest rate Central bankers in Widgetsa have decided that inflation is too high and contractionary monetary policy is needed. First, position LRAS where it would be if contractionary policy is needed. Then, show the short-run results of this policy action by shifting the appropriate curves on the graphs. Quantity of loanable funds Demand LRAS Supply Price level Select all of the actions that are contractionary policy choices the central bankers could use. increase taxes sell bonds to banks decrease government spending raise the interest rate for last-resort loans decrease reserve requirements Real GDP AD SRAS
Economics 8
9. Problems and Applications Q3 Suppose an economy is in long-run equilibrium. The central bank raises the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. Price Level LRAS Aggregate Supply Aggregate Demand Quantity of Output Aggregate Demand 10 Aggregate Supply Now adjust the graph to show the new long-run equilibrium. What causes the economy to move from its short-run equilibrium to its long-run equilibrium? Nominal wages, prices, and perceptions adjust upward to this new price level. The government increases taxes to curb aggregate demand. The government increases spending to increase aggregate demand. Nominal wages, prices, and perceptions adjust downward to this new price level. According to the sticky-wage theory of aggregate supply, nominal wages at the initial equilibrium are nominal wages at the short-run equilibrium resulting from the increase in the money…
4. Using the aggregate demand and supply model, demonstrate the effect of a $100 billion dollar open market sale. (Use a diagram and explain carefully).
9. Money Supply Suppose an economy is in long-run equilibrium. The central bank raises the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. RANDO LHAS Aggregale Supply * A Demand Quantity of Oulpul Now adjust the graph to show the new long-run equilibrium. Aggregate and - Aggregate Supply What causes the economy to move from its short-run equilibrium to its long-run equilibrium? The government increases taxes to curb aggregate demand. The government increases spending to increase aggregate demand. O Nominal wages, prices, and perceptions adjust downward to this new price level. O Nominal wages, prices, and perceptions adjust upward to this new price level. Which of the following is true according to the sticky-wage theory of aggregate supply as a result of the increase in the money supply? Check all that apply. Nominal wages at the initial equilibrium are equal to…
6. Suppose political turmoil causes a significant decrease in oil production in the middle east. How will real GDP, employment, and the general price level be affected in the short run? 7. How will the event described in question 6 affect real GDP, employment, and the general price level in the long run? Explain in words and a graph.
7. Determinants of aggregate supply The following graph shows an increase in short-run aggregate supply (AS) in a hypothetical economy where the currency is the dollar Specifically, the short-run aggregate supply curve shifts to the right from AS, to AS2, causing the quantity of output supplied at a price level of 100 to rise from $200 billion to $250 billion. 200 PRICE LEVEL 175 150 100 76 50 26 O 0 M 400 II 150 200 250 QUANTITY OF OUTPUT AS, Regulations on the firm Human capital Input prices AS 100 350 The following table lists several determinants of short-run aggregate supply. (?) Complete the table by selecting the changes in each scenario necessary to increase short-run aggregate supply. Change Necessary to Increase AS

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