The relationship between the shape of aggregate supply curve and the effectiveness of monetary policy at changing real GDP .

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Answer 1

Question

Chapter 19, Problem 1VQP

To determine

The relationship between the shape of aggregate supply curve and the effectiveness of monetary policy at changing real GDP.

Expert Solution & Answer

Explanation of Solution

Figure 1 shows the aggregate demand and supply curve as follows:

Macroeconomics (Book Only), Chapter 19, Problem 1VQP

In Figure 1, the vertical axis measures the price and the horizontal axis measures the real GDP. The vertical line “AS” is the long-run aggregate supply curve and upward sloping curve “SRAS” is the short-run aggregate supply curve. The downward sloping curves are the aggregate demand curve. The expansionary monetary policy shifts the aggregate demand curve to the right (from AD1 to AD2). Thus, when the aggregate demand curve is vertical, the shifts in aggregate demand curve do not make any changes in real GDP and it is constant at Q1. If the short-run aggregate supply curve is sloping upward, the shift of aggregate demand curve increases the equilibrium of real GDP from Q1 to Q2.

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Short Description Fiscal Policy Graph Details Shown is a Fiscal Policy diagram with the variable Real GDP (billions of dollars) on the x-axis and the variable Price Level on the y-axis. The x-axis is scaled from 0 to 800 billion dollars with an increment of 40 billion dollars, and the y-axis is scaled from 30 to 150 units with an increment of 5 units. Object Details On the graph we have:Four Line Objects:An upward sloping Aggregate Supply, AS line with two endpoints:Point 1 at (160, 70)Point 2 at (720, 140)A downward sloping Aggregate Demand, AD1 line with two endpoints:Point 1 at (80, 110)Point 2 at (640, 40)A vertical Long-run Aggregate Supply, LRAS with two endpoints:Point 1 at (400, 145)Point 2 at (400, 30)A downward sloping Aggregate Demand, AD line with two endpoints:Point 1 at (720, 60)Point 2 at (160, 130)Two Reference Points:Lines AS, AD, and LRAS intersect at (400, 100)Lines AS and AD1 intersect at (280, 85) a. How much does aggregate demand need to change to restore the…

Fiscal Policy Graph Details Shown is a Fiscal Policy diagram with the variable Real GDP (billions of dollars) on the x-axis and the variable Price Level on the y-axis. The x-axis is scaled from 0 to 1000 billion dollars with an increment of 50 billion dollars, and the y-axis is scaled from 0 to 180 units with an increment of 10 units. Object Details On the graph we have:Four Line Objects:An upward sloping Aggregate Supply, AS line with two endpoints:Point 1 at (200, 40)Point 2 at (800, 160)A downward sloping Aggregate Demand, AD line with two endpoints:Point 1 at (200, 160)Point 2 at (800, 40)A downward sloping Aggregate Demand, AD1 line with two endpoints:Point 1 at (350, 170)Point 2 at (900, 60)A vertical Long-run Aggregate Supply, LRAS line with two endpoints:Point 1 at (500, 170)Point 2 at (500, 0)Two Reference Points:Lines AS and AD1 intersect at (600, 120)Lines AS, AD, and LRAS intersect at (500, 100) a. How much does aggregate demand need to change to restore the…

a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? $ billion Suppose instead that the MPC is 0.95. c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.

Answer 2

Question

Chapter 19, Problem 1VQP

To determine

The relationship between the shape of aggregate supply curve and the effectiveness of monetary policy at changing real GDP.

Expert Solution & Answer

Explanation of Solution

Figure 1 shows the aggregate demand and supply curve as follows:

Macroeconomics (Book Only), Chapter 19, Problem 1VQP

In Figure 1, the vertical axis measures the price and the horizontal axis measures the real GDP. The vertical line “AS” is the long-run aggregate supply curve and upward sloping curve “SRAS” is the short-run aggregate supply curve. The downward sloping curves are the aggregate demand curve. The expansionary monetary policy shifts the aggregate demand curve to the right (from AD1 to AD2). Thus, when the aggregate demand curve is vertical, the shifts in aggregate demand curve do not make any changes in real GDP and it is constant at Q1. If the short-run aggregate supply curve is sloping upward, the shift of aggregate demand curve increases the equilibrium of real GDP from Q1 to Q2.

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Answer 3

Question

Chapter 19, Problem 1VQP

To determine

The relationship between the shape of aggregate supply curve and the effectiveness of monetary policy at changing real GDP.

Expert Solution & Answer

Explanation of Solution

Figure 1 shows the aggregate demand and supply curve as follows:

Macroeconomics (Book Only), Chapter 19, Problem 1VQP

In Figure 1, the vertical axis measures the price and the horizontal axis measures the real GDP. The vertical line “AS” is the long-run aggregate supply curve and upward sloping curve “SRAS” is the short-run aggregate supply curve. The downward sloping curves are the aggregate demand curve. The expansionary monetary policy shifts the aggregate demand curve to the right (from AD1 to AD2). Thus, when the aggregate demand curve is vertical, the shifts in aggregate demand curve do not make any changes in real GDP and it is constant at Q1. If the short-run aggregate supply curve is sloping upward, the shift of aggregate demand curve increases the equilibrium of real GDP from Q1 to Q2.

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Answer 4

Question

Chapter 19, Problem 1VQP

To determine

The relationship between the shape of aggregate supply curve and the effectiveness of monetary policy at changing real GDP.

Expert Solution & Answer

Explanation of Solution

Figure 1 shows the aggregate demand and supply curve as follows:

Macroeconomics (Book Only), Chapter 19, Problem 1VQP

In Figure 1, the vertical axis measures the price and the horizontal axis measures the real GDP. The vertical line “AS” is the long-run aggregate supply curve and upward sloping curve “SRAS” is the short-run aggregate supply curve. The downward sloping curves are the aggregate demand curve. The expansionary monetary policy shifts the aggregate demand curve to the right (from AD1 to AD2). Thus, when the aggregate demand curve is vertical, the shifts in aggregate demand curve do not make any changes in real GDP and it is constant at Q1. If the short-run aggregate supply curve is sloping upward, the shift of aggregate demand curve increases the equilibrium of real GDP from Q1 to Q2.

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Answer 5

Chapter 19, Problem 1VQP

To determine

The relationship between the shape of aggregate supply curve and the effectiveness of monetary policy at changing real GDP.

Expert Solution & Answer

Explanation of Solution

Figure 1 shows the aggregate demand and supply curve as follows:

Macroeconomics (Book Only), Chapter 19, Problem 1VQP

In Figure 1, the vertical axis measures the price and the horizontal axis measures the real GDP. The vertical line “AS” is the long-run aggregate supply curve and upward sloping curve “SRAS” is the short-run aggregate supply curve. The downward sloping curves are the aggregate demand curve. The expansionary monetary policy shifts the aggregate demand curve to the right (from AD1 to AD2). Thus, when the aggregate demand curve is vertical, the shifts in aggregate demand curve do not make any changes in real GDP and it is constant at Q1. If the short-run aggregate supply curve is sloping upward, the shift of aggregate demand curve increases the equilibrium of real GDP from Q1 to Q2.

Answer 6

Chapter 19, Problem 1VQP

To determine

The relationship between the shape of aggregate supply curve and the effectiveness of monetary policy at changing real GDP.

Expert Solution & Answer

Explanation of Solution

Figure 1 shows the aggregate demand and supply curve as follows:

Macroeconomics (Book Only), Chapter 19, Problem 1VQP

In Figure 1, the vertical axis measures the price and the horizontal axis measures the real GDP. The vertical line “AS” is the long-run aggregate supply curve and upward sloping curve “SRAS” is the short-run aggregate supply curve. The downward sloping curves are the aggregate demand curve. The expansionary monetary policy shifts the aggregate demand curve to the right (from AD1 to AD2). Thus, when the aggregate demand curve is vertical, the shifts in aggregate demand curve do not make any changes in real GDP and it is constant at Q1. If the short-run aggregate supply curve is sloping upward, the shift of aggregate demand curve increases the equilibrium of real GDP from Q1 to Q2.

Answer 7

Chapter 19, Problem 1VQP

To determine

The relationship between the shape of aggregate supply curve and the effectiveness of monetary policy at changing real GDP.

Answer 8

Expert Solution & Answer

Explanation of Solution

Figure 1 shows the aggregate demand and supply curve as follows:

Macroeconomics (Book Only), Chapter 19, Problem 1VQP

In Figure 1, the vertical axis measures the price and the horizontal axis measures the real GDP. The vertical line “AS” is the long-run aggregate supply curve and upward sloping curve “SRAS” is the short-run aggregate supply curve. The downward sloping curves are the aggregate demand curve. The expansionary monetary policy shifts the aggregate demand curve to the right (from AD1 to AD2). Thus, when the aggregate demand curve is vertical, the shifts in aggregate demand curve do not make any changes in real GDP and it is constant at Q1. If the short-run aggregate supply curve is sloping upward, the shift of aggregate demand curve increases the equilibrium of real GDP from Q1 to Q2.