ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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- 3. Most global markets have been reporting severe contractions, which mainly responding to the COVID-19 pandemic. The situation is worsened by the decrease in people’s confidence in the government as policymakers, spreading a wave of pessimism towards the future prospect of the economy. Explain how such wave of pessimism, ceteris paribus, may lead to short-term economic fluctuations, which will eventually work to push the economy back towards its long-run equilibrium. Use relevant diagrams to support your answer.arrow_forwardSh 13 Economicsarrow_forward8. 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 the government increases spending on building and repairing highways, bridges, and ports. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the increase in government spending. 240 AS 200 AD 160 AS 120 80 AD 40 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the short run, the increase in government spending on infrastructure causes the price level to the price level people expected and the quantity of output to the natural level of output. The increase in government spending 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 $600 billion, before the increase in…arrow_forward
- 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.arrow_forward4. Consider the macroeconomic balance sheets of the following economies. As a policy analyst what would be your monetary and fiscal policy advice in both cases? Explain your answer. Country A Country B GDP Growth Rate: 7% GDP Growth Rate: 0.5% Inflation: 9% Inflation: 2.1% VIX Index (Equity Market Volatility Index): 99 VIX Index (Equity Market Volatility Index): 63 Unemployment: 5% Unemployment: 7% Exchange Rate Volatility: High Exchange Rate Volatility: Low Budget Deficit and Government Borrowing as a share of GDP: High Budget Deficit and Government Borrowing as a share of GDP: High Oil Exporter: Yes Oil Exporter: Noarrow_forwardSuppose that the dynamic aggregate demand curve in Swaziland is determined by the equation M + U-6%. Using this information, draw Swaziland's dynamic aggregate demand curve on the graph. 14 13 12 Aggregate deman 10 8 5 4 3 2 -4 -3 2 1 0 1 2 3 45 678 9 10 Real GDP growth ratearrow_forward
- 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…arrow_forward9. 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…arrow_forward7. 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 ASarrow_forward
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