Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 27, Problem 2.1P
Sub part (a):
To determine
Identify the effects of equilibrium level of
Sub part (b):
To determine
Identify the effects of equilibrium level of aggregative output and the interest rate.
Sub part (c):
To determine
Identify the effects of equilibrium level of aggregative output and the interest rate.
Sub part (d):
To determine
Identify the effects of equilibrium level of aggregative output and the interest rate.
Sub part (e):
To determine
Identify the effects of equilibrium level of aggregative output and the interest rate.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Should the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of how
monetary and fiscal policies affect the economy, and the pros and cons of using these tools to combat economic fluctuations.
The following graph shows a hypothetical aggregate demand curve (AD), short-run aggregate supply curve (AS), and long-run aggregate supply curve
(LRAS) for the U.S. economy in February 2023.
Suppose the government decides to intervene to bring the economy back to the natural level of output by using
policy.
Depending on which curve is affected by the government policy, shift either the AS curve or the AD curve to reflect the change that would successfully
restore the natural level of output.
150
AS
AD
130
110
AS
AD
70
LRAS
50
20
22
24
26
28
30
OUTPUT (Trillions of dollars)
Suppose that in February the government undertakes the type of policy that is necessary to bring the economy back to the natural level of output in
the…
Should the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of how
monetary and fiscal policies affect the economy, as well as the pros and cons of using these tools to combat economic fluctuations.
The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves for the
U.S. economy in May 2026.
Suppose the government chooses to intervene in order to return the economy to the natural level of output by using
policy.
Depending on which curve is affected by the government policy, shift either the AS curve or the AD curve to reflect the change that would successfully
restore the natural level of output.
PRICE LEVEL
150
50
30
130
110
8
70
80
50
20
20
22
24
LRAS
28
AS
OUTPUT (Trillions of dollars)
AD
28
30
AD
ਵੇ
ㅁ
AS
?
Suppose that in May 2026 the government successfully carries out the type of policy necessary to restore the natural level of…
Should the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy, as well as the pros and cons of using these tools to combat economic fluctuations.
The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves for the U.S. economy in January 2026.
Suppose the government chooses to intervene in order to return the economy to the natural level of output by using (a contractionary/an expantionary) policy.
Depending on which curve is affected by the government policy, shift either the AS curve or the AD curve to reflect the change that would successfully restore the natural level of output.
Suppose that in January 2026 the government successfully carries out the type of policy necessary to restore the natural level of output described in the previous question. In March 2026, U.S. imports…
Chapter 27 Solutions
Principles of Economics (12th Edition)
Knowledge Booster
Similar questions
- Should the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy, as well as the pros and cons of using these tools to combat economic fluctuations. The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves for the U.S. economy in February 2026. Suppose the government chooses to intervene in order to return the economy to the natural level of output by using Depending on which curve is affected by the government policy, shift either the AS curve or the AD curve to reflect the change that would successfully restore the natural level of output. AS 130 110 X AD 70 LRAS 22 24 26 OUTPUT (Trillions of dollars) PRICE LEVEL 150 50 20 28 30 AD 4 AS policy. (? Suppose that in February 2026 the government successfully carries out the type of policy necessary to restore the natural level of…arrow_forwardThe adjacent diagram (Graph 1) shows the initial aggregate credit demand curve (CD₁) of the economy. Suppose the economy is currently at point A. Identify how the economy is likely to shift/move due to changes in credit demand in the following cases. Scenario Actions of the newly elected head of state make citizens feel pessimistic about the future. The government increases its spending on infrastructure by financing it through borrowing Banks raise the nominal interest rate by 2 percentage points after inflation rises by 4 percentage points. New position of economy The solar energy industry in country Z is relative are only a handful of small-scale producers curr energy industry (which offers a substitute for sol many large-scale producers currently in the mar government of country Z's ratification, the govern and production of solar energy D E B gnificant barriers to entry, and there arket. On the other hand, the coal been long-established and has the recent Paris agreement and the…arrow_forwardShould the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy, as well as the pros and cons of using these tools to combat economic fluctuations. The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves for the U.S. economy in February 2026. Suppose the government chooses to intervene in order to return the economy to the natural level of output by using (an expansionary/a contractionary) policy. Depending on which curve is affected by the government policy, shift either the AS curve or the AD curve to reflect the change that would successfully restore the natural level of output. Suppose that in February 2026 the government successfully carries out the type of policy necessary to restore the natural level of output described in the previous question. In July 2026,…arrow_forward
- The following graph shows several aggregate demand and aggregate supply curves for an economy whose potential output is $5 trillion. The curves are labelled a, b, c, and d. Three points on the graph are also indicated by grey stars and labelled K, L, and M. 100 90 80 M. 70 60 50 b 40 30 a 20 2 3 4 5 6 7 REAL GDP (Trillions of dollars) Identify which curve on the previous graph corresponds to each description in the following table. If the curve described does not appear on the graph choose Not Shown. Description b Not Shown a Long-run aggregate supply (LRAS) Short-run aggregate supply (SRAS) when the economy is at long-run equilibrium Short-run aggregate supply (SRAS) when there is an inflationary gap Short-run aggregate supply (SRAS) when there is a recessionary gap Aggregate demand (AD) PRICE LE VELarrow_forwardShould the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy, and the pros and cons of using these tools to combat economic fluctuations. The following graph shows a hypothetical aggregate demand curve (AD), short-run aggregate supply curve (AS), and long-run aggregate supply curve (LRAS) for the U.S. economy in May 2023. policy. Suppose the government decides to intervene to bring the economy back to the natural level of output by using Depending on which curve is affected by the government policy, shift either the AS curve or the AD curve to reflect the change that would successfully restore the natural level of output. 150 AS AD AS 130 110 21 F11 F12 Fnarrow_forwardThe policies of the federal government influence the outcomes of the various activities in that economy. When government policies change or unplanned events occur, the resulting economic events or activity will usually change. Listed below is a policy or event that affect the performance of the economy: The level of investment decreases because of a lack of confidence in the economy. for the question above, describe what would be the likely outcome in the economy. Use the appropriate tools of analysis, such as aggregate demand and aggregate supply where appropriate, to justify and explain your answer.arrow_forward
- Use the graph to answer the question that follows. Real GDP Potential real GDP T5 Time The government of Country 'X' is operating at point 'C' in T3. Which of the following events would move the economy from point 'C' to 'D'? Sharp rise in unemployment rate Increase in money supply Decrease in interest rates Rise in aggregate demand Decrease in import Actual real GDParrow_forwardPRICE LEVEL Should the government use monetary and fiscal policy in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy, as well as the pros and cons of using these tools to combat economic fluctuations. The following graph plots hypothetical aggregate demand (AD), short-run aggregate supply (AS), and long-run aggregate supply (LRAS) curves for the U.S. economy in March 2026. Suppose the government chooses to intervene in order to return the economy to the natural level of output by using policy. Depending on which curve is affected by the government policy, shift either the AS curve or the AD curve to reflect the change that would successfully restore the natural level of output. 150 AS AD 130 110 90 70 AD AS ?arrow_forward#2a: As you have learned consumer expectationsLinks to an external site. are a major driver of the short run path of the economy. Consumer spending accounts for about 68% of GDP and consumer sentimentLinks to an external site. is a major factor in shifting Aggregate Demand. Do you expect consumer confidence and business expectations to improve in the months ahead? Utilizing the equation GDP= C+I+G+ (X-M) from Chapter 6 what is your forecast for the way the AD curve will shift between now and the end of 2023? Explain. Do you anticipate a recession between now and the end of 2023?arrow_forward
- Which of the following explain why the Aggregate Demand Curve slopes downward? Mark all that apply. Select 4 correct answer(s) Question 10 options: When the price level rises, the interest rate will rise, reducing Investment Spending. When the price level falls, the interest rate will fall, increasing Investment Spending. When the price level rises, the purchasing power of money declines and Consumption Spending will decline. When the price level falls, the purchasing power of money declines and Consumption Spending will decline. When the domestic price level rises, imports become relatively more expensive and Net Exports increase. When the domestic price level falls, imports become relatively more expensive and exports become less expensive, resulting in an increase in Net Exports.arrow_forwardSuppose the economy of a hypothetical country has reached its long-run macroeconomic equilibrium when each of the following aggregate demand shocks occurs. The economy of a hypothetical country has been stable for two or three years with very low unemployment. Wages have been gradually increasing during this time. Now stock market prices begin significant increases, causing peoples’ investments, such as their retirement accounts and other investments, to increase in value. People feel very good about the future and use their new-found wealth to buy things that they had been hesitant to purchase in the past. Describe, in a short essay inserted below these questions, how the economic situation will change and how the government could best respond to these changes. Include detailed answers to the following questions in your essay: What kind of economic gap will start to occur (inflationary or recessionary)? What kind of fiscal policy might be helpful to stabilize the economy…arrow_forwardFigure 1: Hayek’s (Classical) AD-AS Model Economics Online. (n.d.). Aggregate Demand. Retrieved from http://economicsonline.co.uk/Managing_the_economy/Aggregate_demand.html Hayek says that markets will heal themselves and that government should not intervene. How does the AD-AS model reflect Hayek’s idea that governments cannot increase real GDP beyond the level that the free market economy is able to produce? Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not? Figure 2: Keynes’s AD-AS Model Economics Online. (n.d.). Aggregate supply. Retrieved from http://www.economicsonline.co.uk/Managing_the_economy/Aggregate+supply.html 2.1. In Figure 2 above, what are the factors that may cause the aggregate demand to shift from AD to AD1? What is the difference between demand pull inflation, cost push inflation and recession? 2.2. In macroeconomics, the immediate short run is known as a length…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning