Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 33, Problem 1TY
To determine
The effect of a change in the aggregate
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Students have asked these similar questions
I can't find anything to back up that a decrease in aggregate demand causes cost push inflation. My textbook does mention the increase in aggregate supply. I thought that a decrease in price generally meant deflation? And doesn't the decrease (left shift) in aggregate demand result in lower prices?
Use aggregate demand and aggregate supply to explain the inverse relationship between inflation and unemplyment
Suppose that the short-run aggregate supply curve is: π= 2 + 1.5 (Y-10),
where it is inflation and Y is output; and the aggregate demand curve is: Y= 11 -0.5.
Find the equilibrium output and the equilibrium inflation rate.
Chapter 33 Solutions
Economics: Principles & Policy
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- How do changes in aggregate demand and aggregate supply might cause inflation in the economy?arrow_forwardGive two specific reasons why inflation in Canada is higher than normal.arrow_forwardSuppose that government decides to support the firms for their investments in research and the development.Assuming this support increases roductivity in the economy, use aggregate demand and supply analysis to predict the short-run and long-run effects on inflation and output. Show these effects on a graph and explain the results in detail.arrow_forward
- Econ 2 2022- 2b: How would you expect a decrease in Aggregate Demand to affect both inflation and real GDP? Under what conditions would you expect a decrease in AD to have a bigger effect on inflation than real GDP?arrow_forwardFILL IN THE BLANKS Inflation measures the changes in the level of in the economy. Demand-pull inflation is caused by a shift in the aggregate demand curve, while cost-push inflation is caused by a shift of the aggregate supply curve. When the price level is increasing by an extremely high rate, the economy is said to be experiencing . Stagflation occurs when the economy is experiencing high inflation, high unemployment, and low at the same time. To combat inflation, the government can use contractionary monetary policy which will also lead to interest rates. Note, however, that there is a short-run tradeoff between inflation and as illustrated by the Philips Curve. Inflation is stable when the unemployment rate is equal to the rate of unemployment.arrow_forwardComplete the sentences with the correct term. Some options can be used more than once, and some may not be used at all. Cost-push inflation occurs when decreases until equilibrium output falls below the full employment level. Answer Bank As a result, the increases. aggregate price level One possible cause of cost-push inflation is an increase in imports cost of inputs To combat falling aggregate output, the government may introduce policies to increase short-run aggregate supply to where it and short-run aggregate supply intersect aggregate output at the same point. cost-push inflation These policies cause to return to its full employment level, aggregate demand long-run aggregate supply and the increases even further.arrow_forward
- Starting from a zero rate of inflation, suppose some event decreases aggregate demand. Use flow diagrams and the labor market graph to explain what happens to wages and prices which results in the “wage-price spiral”. What happens to the rate of inflation?arrow_forwardUse a correctly labeled aggregate demand and aggregate supply graph to illustrate cost-push inflation. Given an example of what might cause cost-push inflation in the economyarrow_forwardAssess the validity of the following statement: An increase in government spending, the target inflation rate or the monetary base shifts the aggregate demand curve to the right.arrow_forward
- Explain in details how high inflation can lead to a recession in several ways.arrow_forwardIn which of the following situations will demand pull inflation fall? a) Rising aggregate supply b) Reduced taxes c) Rising incomes d) Decreased imports e) Aggregate demand rising with aggregate supply lagsarrow_forwardExplain three implications of increasing inflation.arrow_forward
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