Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Question
Chapter 29, Problem 6IAPA
To determine
To find:
The short-term macroeconomic equilibrium and whether Japan has an inflationary or a recessionary gap and the magnitude of that gap.
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Students have asked these similar questions
When does macroeconomic equilibrium occur?
Multiple Choice
When exports equal imports.
When the aggregate supply equals the long-run Aggregate Supply
When the aggregate demand equals the long-run Aggregate Supply.
When the aggregate quantity demanded is equal to the aggregate quantity supplied.
Using aggregate demand and aggregate supply, graph the effects on the price level and GDP of each of the following. Draw a large graph and label all axes, initial and final equilibrium points, direction of shift if any, all curves and lines, equilibrium values on the x- and y-axes. State the conclusion in words.
a. A cut in income taxes
b. An increase in military spending
c. A drop in export demand by foreign purchasers
d. An increase in imports
e. A decline in business investment spending
Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves.
Assume the central bank in this economy (the Fed) fixes the quantity of money supplied.
Suppose the price level decreases from 150 to 125.
Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money.
Money Supply
15
12
4
Money Demand
3
5
10
15
20
MONEY (Billions of dollars)
INTEREST RATE (Percent)
18
0
0
25
30
Money Demand
Money Supply
(?)
Following the price level decrease, the quantity of money demanded at the initial interest rate of 9% will be
supplied by the Fed at this interest rate. As a result, individuals will attempt to
bonds and other interest-bearing assets, and bond issuers will realize that they
restored in the money market at an interest rate of
than the quantity of money
their money holdings. In order to do so, they will
interest rates until equilibrium is
Chapter 29 Solutions
Foundations of Economics (8th Edition)
Ch. 29 - Prob. 1SPPACh. 29 - Prob. 2SPPACh. 29 - Prob. 3SPPACh. 29 - Prob. 4SPPACh. 29 - Prob. 5SPPACh. 29 - Prob. 6SPPACh. 29 - Prob. 7SPPACh. 29 - Prob. 8SPPACh. 29 - Prob. 9SPPACh. 29 - Prob. 10SPPA
Ch. 29 - Prob. 11SPPACh. 29 - Prob. 1IAPACh. 29 - Prob. 2IAPACh. 29 - Prob. 3IAPACh. 29 - Prob. 4IAPACh. 29 - Prob. 5IAPACh. 29 - Prob. 6IAPACh. 29 - Prob. 7IAPACh. 29 - Prob. 8IAPACh. 29 - Prob. 9IAPACh. 29 - Prob. 10IAPACh. 29 - Prob. 1MCQCh. 29 - Prob. 2MCQCh. 29 - Prob. 3MCQCh. 29 - Prob. 4MCQCh. 29 - Prob. 5MCQCh. 29 - Prob. 6MCQCh. 29 - Prob. 7MCQ
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- The following graph shows the aggregate demand (AD), short-run aggregate supply (SRAS), and long-run aggregate supply (LRAS) curves of an economy. PRICE LEVEL 300 270 240 210 180 150 120 90 60 30 0 AD LRAS B SRÁS 0 100 200 300 400 500 600 700 800 900 1000 REAL GDP (Billions of dollars) Point A on the graph shows the state of the economy in a recessionary gap increase aggregate demand and move the economy to point B decrease aggregate demand and move the economy to point C intervene by keeping the economy at point A follow a laissez-faire policy 1 (?) Keynesian economists believe that the government shouldarrow_forwardThe graph to the right shows an economy's aggregate demand curve. Show the determination of the economy's long-run macroeconomic equilibrium by (i) using the Line tool to draw and label the long-run aggregate supply curve to show an equilibrium and (ii) using the Point tool to identify the equilibrium point. Label this point E. Price level Real GDP AD Earrow_forwardDraw an aggregate demand and supply diagram for Japan. In the diagram, show how each of the following affects aggregate demand and supply. a. The U.S. gross domestic product falls. b. The level of prices in Korea falls. c. Labor receives a large wage increase. d. Economists predict higher prices next year.arrow_forward
- Draw an aggregate demand and supply diagram for Japan. In the diagram, show how each of the following affects aggregate demand and supply: The U.S. gross domestic product falls. The level of prices in Korea falls. Labor receives a large wage increase. Economists predict higher prices next year.arrow_forwardName two macroeconomic variables that decline when the economy goes into a recession. Name one macroeconomic variable that rises during a recession.arrow_forwardDescribe how different parts of the economy may have experienced shifts and changes in supply and demand. Provide at least 4 examples.arrow_forward
- Consider a macro-economy that was initially at equilibrium. Using an aggregate demand and aggregate supply diagram model of the economy, graphically illustrate and discuss the short-run and long-run effectsof the following events upon the economy:(a) The imposition of a carbon tax upon local big polluting companies;(b) An appreciation in the foreign exchange rate value of the economy’s currency;(c) A major trading partner’s economy fall into recession;(d) The country’s main exports fall in price while the goods the country imports from abroad rise in pricearrow_forwardWhich of the following causes the aggregate supply curve to shift inward? a. Increase in quantity of labor b. Increase in quantity of capital c. Decrease in GDP d. Decrease in price levelarrow_forwardWhat change does recession has on the price and output level when the change in aggregate demand is more than change in aggregate supply ?arrow_forward
- What change does recession has on the price and output level when the change in aggregate demand is less than change in aggregate supply ?arrow_forwardCreate a graph for a short-run aggregate supply curve. Use the variable ‘Price Level’ for the vertical axis and ‘Real GDP’ for the horizontal axis In your answer, explain why there is a direct relationship between the price level and real GDP. Use your graph to illustrate your explanation. Also, discuss determinants of Aggregate Supply or factors that shift Aggregate Supply curve. (200 to 300 words) .arrow_forward
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