Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
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Chapter 12, Problem 9E
To determine
Immigration and the inflation in the economy.
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Carefully explain why the price level are rigid in the short run (SR). Illustrate your answer using a real world example where a price of an item may not change for months even though the raw material cost to produce that item may change.
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Draw a correctly labeled graph of the long-run aggregate supply and short-run aggregate supply curves.
Show each of the following in your graph. Assume that the economy of your graph's country has an actual unemployment rate that is less than the natural unemployment rate.
Help with the last two bullet points.
Chapter 12 Solutions
Macroeconomics (Fourth Edition)
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- Suppose that your economy is in long run equilibrium. The aggregate demand and aggregate supply in the market is represented by the following functions: AD:= 360 – 4Y AS: P = 20 + 4Y Something occurs in the economy and the aggregate demand changes to: AD: P = 400 – 4Y Calculate the inflation rate that occurs with the change in aggregate demand.arrow_forwardGraphically show the impact of a tax cut shock. Include all three markets: Labor, Product, Capital. Start with an initial steady state. Show the impact of a shock in the initial market. Next show the propagation mechanism--how it carries over into the other two markets. Show at least one set of the feedback loop, Show the new steady state.arrow_forwardHow do expectations about future economic conditions influence the speed of adjustment? Are there any other factors that might affect the speed of adjustment?arrow_forward
- Assume that the total productivity in our country decreases (a negative shock to the production function). a) Using a graph, What happens to the demand curve for labor? b) Using a graph, How would the decline in productivity affect the labor market (employment, unemployment and real wages), if labor market is always in equilibrium? c) Using a graph, How would decreases in productivity affect the labor market if unions prevented the decline in real wages?arrow_forwardQ3: Consider a baseline long run equilibrium where output is 22 trillion dollars, and the price level is 100. Note: In the Long Run Steady State Equilibrium, Price expectation is the same as price level & unemployment is 5% or lower. None of these are guaranteed in the short run. Usually, short run equilibrium is called an underemployment equilibrium.• You should answer each step in the following answer 3 table.arrow_forwardAre there any “good” supply shocks? Explainarrow_forward
- A majority of economists believe that in the long run, real economic variables and nominal economic variables behave independently of one another. For example, an increase in the money supply, a no long-run effect on the quantity of goods and services the economy can produce, a and nominal variables is known as VERTICAL AXIS However, in the short run, most economists believe that real and nominal variables are intertwined. Economists use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incomplete short-run aggregate demand (AD) and aggregate supply (AS) diagram-it needs appropriate labels for the axes and curves. In the questions that follow you will identify some of the missing labels. The aggregate price level. HORIZONTAL AXIS AS variable, will cause the price level, a AD (?) variable, to increase but will have variable. The distinction between real variables curve shows…arrow_forwardHowever, the labor market is a derivative of the goods market in the Keynesian theory (“principle of effective demand”). Therefore, unemployment is explained by the lack of demand in the goods market. According to the Keynesian theory, what would happen to the unemployment rate if real wages fall? How should unemployment be reduced?arrow_forwardIn our Aggregate Demand and Supply model, a decrease in Aggregate Demand would cause which of the following in the short run? Group of answer choices a) neither deflation nor inflation b) deflation and recession c) inflation and economic growth d) inflation and recession e) deflation and economic growtharrow_forward
- Assume that you were working in a bar before the Covid-19 pandemic. Suppose that you lost your job as soon as the COVID–19 pandemic hit the economy. Given that many non-essential industries have shut down following the government order, what is your likely behavior in the labor market? How reliable is the unemployment rate during the pandemic in assessing the labor market tightness? Explain.arrow_forwardWhich of the following is most commonly used to monitor short-run changes in economic activity? Answer the inflation rate real GDP aggregate demand aggregate supplyarrow_forwardThe Aggregate Supply (AS) curve slopes upward to reflect the profit motive of businesses. So, why are there two versions of the AS curve( i.e. short run and long- run). Discussarrow_forward
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