Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Question
Chapter 11, Problem 3RQ
To determine
The factors that affect the shift and the movement of the IS curve.
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What are some examples of changes in the economy that would lead to a movement along the IS curve? What are some changes that would shift the IS curve?
Explain what causes shifts in the IS curve.
Do you need the aggregate demand model to determine the equilibrium of the IS curve model?
Chapter 11 Solutions
Macroeconomics (Fourth Edition)
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- The following graph shows the short-run and long-run aggregate supply curves (SRAS and LRAS) for an economy. Suppose there is a technological improvement that allows firms to reduce their costs of production permanently. Drag one or both of the curves on the graph to illustrate the long-term effects of this change. If you don't believe there will be any long-term effects, leave the curves where they are. 240 LRAS SRAS 200 SRAS 160 LRAS 120 80 40 6 12 18 24 REAL GDP (Trillions of dollars) Assuming aggregate demand is not affected by the technological improvement, the long-run effect of this v supply shock is v in aggregate output and v in the price level. PRICE LEVELarrow_forwardConsider the following changes in the macroeconomy and show how to think about them using the IS curve. Explain how and why GDP is affected in the short run (assuming the real interest rate is constant). The government offers a temporary investment tax credit: for each dollar of investment that firms undertake, they receive a credit that reduces the taxes they pay on corporate income. A booming economy in Europe this year leads to an unexpected increase in demand by European consumers for US goods. US consumers suddenly love all things made in Brazil and sharply increase their imports from that country. A housing bubble bursts so that housing prices fall by 20% and new home sales drop sharply.arrow_forwardWhere does GDP fit into an AD/AS model?arrow_forward
- Describe two ways economists try to forecast developments in the economy.arrow_forwardDefine what economists mean when they use the word: “recession”?arrow_forwardWhat change does recession has on the price and output level when the change in aggregate demand is less than change in aggregate supply ?arrow_forward
- Name two macroeconomic variables that decline when the economy goes into a recession. Name one macroeconomic variable that rises during a recession.arrow_forwardWill the shift of SRAS to the right tend to make the equilibrium quantity and price level higher or lower? What about a shift of SRAS to the left?arrow_forwardWhat are some of the ways in which exports and imports can affect the AD/AS model?arrow_forward
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