Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 10, Problem 4NP
a)
To determine
The equilibrium values of output and the
b)
To determine
The equilibrium values of output and the price level using the AS-AD curve after the unanticipated increase in money supply.
c)
To determine
The equilibrium values of output and the price level using the AS-AD curve, after the increase in money supply as announced by F.
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If the AD curve is given by , and segment 2 of the AS curve is , what is the equilibrium price level?
Remember to answer up to two decimal places. _____
The Greek letter αα represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that α=$4 billionα=$4 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $4 billion.
Suppose the natural level of output is $40 billion of real GDP and that people expect a price level of 110.
On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 100, 105, 110, 115, and 120.
0
$75 150 225
Investment ($)
Price Level
AS
Q₁
Real GDP
Investment
Demand
$50 100 150
Investment ($)
AD, (/=$50)
Z
AD, (/=$150)
-AD, (/=$100)
Refer to the above diagrams, in which the numbers in parentheses near the AD1, AD2, and AD3 labels indicate the level of
investment spending associated with each curve. All figures are in billions. The economy is at point Y on the investment
demand curve. Given these conditions, what policy should the Fed pursue to achieve a noninflationary full-employment
level of real GDP?
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