Macroeconomics
Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 16, Problem 2WNG
To determine

Effects of over estimation in the short run and long run.

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Illustrate graphically what would happen in the short run and in the long run to the price level and Real GDP if individuals hold rational expectations, prices and wages are flexible, and individuals overestimate the rise in aggregate demand (bias upward).
What effects would each of the following have on aggregate demand or       aggregate supply?  Justify your answer. In each case use a diagram to show the expected effects on the equilibrium price level and real output level in the economy.  Assume that all other things remain constant and prices are inflexible downward.  (a) A reduction in interest rates at each price level   (b) A sizable increase in labor productivity.   (c) The nation’s currency appreciates against its major trading partners  .
Assume that the housing market is in equilibrium in year 1. In year 2, the mortgage rate that banks charge consumers decreases, but producers are not affected. Which of the following is most likely to be the equilibrium change? Price D. Quantity Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. The equilibrium will be at point C before the change in expectations and point A after the a change The equilibrium will be at point A before the change in expectations and point B after the b change The equilibrium will be at point A before the change in expectations and point C after the change The equilibrium will be at point E before the change in expectations and point C after the d change [3 Fulls 40 la
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