#1 A certain economy starts in a long-run equilibrium, where potential GDP is $50 billion, the real interest rate is 5% and inflation is 2%. a) Draw the long-run equilibrium in three diagrams: AE, IS-MP and the Phillips curve with inflation on the vertical axis.
Q: What role, if any, does monetary policy play in the Real Business Cycle Model?
A: Monetary policy refers to the actions and decisions taken by a country's central bank or monetary…
Q: Josh is playing blackjack for real money. He has reference-dependent preferences over money: if his…
A: Josh is engaged in playing blackjack with actual currency. He possesses reference-dependent…
Q: 3. Import quotas Kazakhstan is a grape producer, as well as an importer of grapes. Suppose the…
A: Deadweight loss signifies the welfare loss experienced by the economy due to the inefficient…
Q: (a) At date 0 information is revealed that there will be a (temporary) increase in A at date t₁, and…
A: In the given Ramsey model, the planner aims to maximize the discounted utility of consumption over…
Q: 10. Growth accounting: Consider the following (made-up) statistics for some economics. Assume the…
A: Given,(a) A European economy: .(b) A Latin American economy: .(c) An Asian economy: .
Q: Consider the following economy. Individuals are endowed with y units of the consumption good when…
A: In economics, intertemporal decision-making refers to a decision-making strategy that involves…
Q: The contents of a building are valued at $200,000 but insured for only $120,000. The policy insuring…
A: The insurance company will pay the lesser of the two amounts: the actual cash value of the contents…
Q: output is produced?? 14 12 10 8 6 X MSB 60 500 120 140 160 180 26 $5 $3 $4 MSC $8 be the of…
A: A Pigovian tax, often called a Pigou tax, is a levy placed on a product or service responsible for…
Q: For a monopoly, why is marginal revenue less than price? O a) If a monopoly wishes to increase…
A: In the context of a monopoly, where a single firm has control over the entire market for a…
Q: The graph shows the demand for university education. The marginal cost of educating a student is a…
A: Socially efficient output, also known as allocative efficiency,, also known as allocative…
Q: Which impacts economic growth? O a decrease in the productivity of labor O an increase in the…
A: Economic growth in a country occurs when more output can be produced within a specific time period.…
Q: Trade based upon comparative advantage is economically beneficial because: a. it promotes an…
A: Comparative advantage is a principle where countries specialize in producing goods and services they…
Q: Section B Answer the question. Provide the detailed derivation for each answer. Consider the IS-LM…
A: DISCLAIMER “Since you have asked multiple questions, we will answer the first three questions for…
Q: At what point does this firm first experience diminishing returns to labor? (This is also sometimes…
A: Marginal product is the units produced due to an additional labor hired. Marginal product is…
Q: Each year, the lumberjacks choose independently how many acres of trees to cut down; specifically,…
A: A common-pool resource is an impure public good created by a natural or manmade resource system that…
Q: Suppose that the only movie theater in town has two types of customers, senior citizens and adults.…
A: A monopoly is a market structure in which a single seller or producer dominates the entire supply of…
Q: Identify and Graphically illustrate the similarities or differences between a perfectly competitive…
A: A perfectly competitive firm is characterized by a large number of buyers and sellers selling…
Q: Complete the following table by filling in the quantity sold, the price buyers pay, and the price…
A: The tax burden refers to the total amount of tax paid by a particular group of people. In other…
Q: enjoys rehearsing her arias rehearse ing company, and Daphne, an opera singer in a local opera…
A: Opportunity cost is a fundamental concept in economics that refers to the value of the next best…
Q: Discuss the significance of the Bretton woods System and state its key institutions that were formed…
A: Macroeconomic monitoring will remain crucial since it dictates the eventual trajectory of the…
Q: - (Exhibit: The Restaurant Market) The exhibit shows curves facing a typical restaurant in a…
A: Profit maximisation in economics refers to the biggest difference between total revenue (TR) and…
Q: Consider an AK model of endogenous growth. If the aggregate production function is given by Y=1.5K…
A: The gathering of tangible assets and human resources via savings and investment is the primary…
Q: 2. There are n ≥ 2 profit-maximising firms producing a homogeneous good, competing in quantity, and…
A: There is a mention in the question to answer only parts D and E of the question. In order to answer…
Q: Suppose the Fed announces that it is raising its target interest rate by 75 basis points, or 0.75…
A: Federal Bank is defined the Central Bank of an economy. it is a government owned bank.
Q: 3. The effect of negative externalities on the optimal quantityof consumption Consider the market…
A: It can be defined as a form of tax that is imposed by the government on the activities that generate…
Q: Give typing answer with explanation and conclusion A standard "money demand" function used…
A: A) In the given money demand function ln(m) = β0 + β1ln(GDP) + β2R, where β1 = 2.66, and β2 = -0.05,…
Q: A present asset (defender) has a current market value of $85,000 (year 0 dollars). Estimated market…
A: There is one defender and a challenger .For Challenger -Current Market Value = 85000 MV in year 1 =…
Q: 8. Consider the data provided in the table below. QP TC TR MR MC Profit 0 $5 $9 1 $5 $10 2 $$ $12 3…
A: “Since you have posted a question with multiple sub parts, we will provide the solution only to the…
Q: Discuss the demand schedule and the demand curve, as well as how they are related to one another
A: Demand for goods and services is a fundamental concept in economics, shedding light on how consumers…
Q: For the cash flow diagram, determine (Use i = 8% per year); 1. The Present Equivalent (P). 2. The…
A: Initial value=400Cash inflow till year 4 increases by gradient 200 per year and then year 4 to 9…
Q: The diagram on the right shows a firm (industry) that eams a normal return to capital if organized…
A: Perfect competition is market where there are very large number of firms. All firms are identical…
Q: 5. Expectations and the modern view of the Phillips curve The following graph shows the short-run…
A: Short run Philips curve signifies what is happening of high expansion and low joblessness rate as…
Q: Assume that the desired reserve ratio is 20 percent. Suppose that the Bank of Canada sells $500 of…
A: Desried Reserve ratio: Also known as the reserve requirement or reserve ratio, it represents the…
Q: Consider a Cournot duopoly with homogeneous goods. There are two firms that choose non-negative…
A: A Nash equilibrium is a concept in game theory that represents a situation in which each participant…
Q: A man gets a job with a salary of $38,300 a year. He is promised a $2,730 raise each subsequent…
A: It can be defined as the total amount of money an individual can earn in a particular period of time…
Q: Use the graph below to answer the following questions: D, is the transactions demand for money, Dm…
A: Transaction demand for money refers to the demand for money that arises from the need to facilitate…
Q: (Table: City Sanitation in Winnetka) Use Table: City Sanitation in Winnetka. Suppose that the…
A: The optimal quantity is where the marginal benefit is equal to the marginal cost. The marginal…
Q: Y 100 Country A X Y 40 Country B 40 X 20 a) How much of Good Y will Country B produce if they…
A: Opportunity cost is value of next best alternative use of resources. In our context, opportunity…
Q: Why does the government provide benefits in-kind? Why don't we just give money to low-income people?
A: Government alludes to the framework or gathering of individuals liable for governing and…
Q: Andrew paid $40 to buy a potato cannon, a cylinder that shoots potatoes hundreds of feet. He friend…
A: Willingness to pay (WTP) is a concept in economics that refers to the maximum amount of money an…
Q: Complete the table by cokulating physical capital per worker as well as labor productivity. Hint:…
A: Given,YearPhysical Capital(Printing presses)Labor Force(Workers)Physical Capital per Worker(Printing…
Q: Explain what a competitive market is and describe a market type that is not perfectly competitive.
A: Disclaimer- “Since you have asked multiple questions, we will solve the first question for you as…
Q: An individual sets aside a certain amount of his income per month to spend on his two hobbies,…
A: Demand is amount of a good that consumers is willing and able to buy at different prices.
Q: Which of the following is true about classifying countries as low income, middle income, or high…
A: It can be defined as the tool which helps to measure the average income of an individual in a…
Q: Because it takes six to eight years before newly planted blueberry plants reach full production, the…
A: A price ceiling is a binding maximum price that a seller can charge for his goods or services. This…
Q: Ketchup Corporation is currently trading at $40 per share. There are 0.5 million shares outstanding.…
A: When you invest money in the stock market than it is possible that you may get extra ordinary profit…
Q: The following table contains statements that provide some analysis of policies that address the…
A: A positive statement is a statement which can be evaluated, accepted or rejected on the basis…
Q: 1. Can Albert's choices be represented by any utility function? If so, find a utility function that…
A: Note: Since you have posted a question with multiple sub parts, we will provide the solution only to…
Q: Suppose that the local government of Raleigh decides to institute a tax on soda producers. Before…
A: The distribution of the economic burden of a tax among consumers, producers, and society as a whole…
Q: estern Refining purchased a model MTVS peristaltic pump for injecting antiscalant at its…
A: The initial cost of the pump = $1200Chemical cost =$11 per day.In a month, there are 30 days so the…
Please answer with graphs, calculations and explain. Thank you !
Step by step
Solved in 5 steps with 6 images
- Assume that a country's economy is in equilibrium. a) () Using a correctly labeled AD/AS graph, show how an increase in the price of gasoline, an important input of production, will affect the following in the short run. (i) Real output :- (ii) Price level-Using a correctly labeled graph, show the same effect on the Phillips curve. () Central bank of the country responds to the higher price of oil by increasing the money supply. (i ) ()Explain the process by which the increase in the money supply will affect the aggregate demand in the short run. (ii) (Indicate on the AD/AS graph, how the increase in the money supply will affect real output and the price level. d) () Now assume that instead of using monetary policy in response to the gasoline price increase, the government reduces business taxes, which results in lower production costs. Using a new correctly labeled graph, show the effect of the reduction in business taxes on the following. (i) () Real output - (ii) () Price levele) (…The following graphs show the state of an economy that is currently in long-run equilibrium. The first graph shows the aggregate-demand (AD) and long-run aggregate-supply (LRAS) curves. The second shows the long-run and short-run Phillips curves (LRPC and SRPC). PRICE LEVEL INFLATION RATE 0 0 3 1 LRAS 6 12 9 OUTPUT (Trillions of dollars) LRPC 4 UNEMPLOYMENT (Percent) 2 3 15 5 AD SRPC 18 6 AD LRAS SRPC LRPCAssume that the economy of Country X has an actual unemployment rate of 7%, a natural rate of unemployment of 5%, and an inflation rate of 3%. a. Using the numerical values given above, draw a correctly labeled graph of the short-run and long-run Phillips curves. Label the current short-run equilibrium as point B. Plot the numerical values above on the graph. b. Assume that the government of Country X takes no policy action to reduce unemployment. In the long run, will each of the following shift to the right, shift to the left, or remain the same? i. Short-run aggregate supply curve. Explain. ii. Long-run Phillips curve c. Identify a fiscal policy action that could be used to reduce the unemployment rate in the short run. d. Draw a correctly labeled graph of aggregate demand and short-run aggregate supply, and show the impact on the equilibrium price level and real gross domestic product (GDP) of the fiscal policy action identified in part (c). e. Based on the change in real GDP…
- Which of the following is vertical? a. neither the long-run Phillips curve nor the long-run aggregate supply curve b. both the long-run Phillips curve and the long-run aggregate supply curve c. the long-run Phillips curve, but not the long-run aggregate supply curve d. the long-run Phillips curve, but not the long-run aggregate supply curveWhich of the following is downward-sloping? a. both the long-run Phillips curve and the long-run aggregate-supply curve b. neither the long-run Phillips curve nor the long-run aggregate-supply curve c. the short-run Phillips curve, but not the long-run aggregate-supply curve d. the long-run Phillips curve, but not the long-run aggregate-supply curveSuppose that natural real GDP is constant For every 1 Suppose that natural real GDP is constant. For every 1 percent increase in the rate of inflation above its expected level, firms are willing to increase real GDP by 2 percent. The output ratio is initially 100 and the inflation rate equals 2 percent. (a) Based upon the preceding information, draw the short-run Phillips Curve. (b) What is the growth rate of nominal GDP in the economy? An adverse supply shock raises the inflation rate associated with every output ratio by 3 percentage points. (c) Draw the new short-run Phillips Curve. (d) The government chooses to follow a neutral policy in response to this shock. What will be the growth rate of nominal GDP? What will be the new rate of inflation? What will be the output ratio? (e) If the government chooses to follow an accommodating policy, what would be the new inflation rate? The output ratio? The growth rate of nominal GDP? (f) If the government chooses to follow an…
- 3) Suppose that a fall in consumer spending causes a recession a)Illustrate the immediate changes in the economy using both an aggregate-supply/aggregate-demand diagram and a Phillips-curve diagram.On both graphs, label the initial long-run equilibrium as point A and the resulting short-run equilibrium as point B.What happens to inflation and unemployment in the short-run b)Now suppose that over time expected inflation changes in the same direction that actual inflation changes.What happens to the position of the short-run Phillips curve? After the recession is over, does the economy face a better or worse set of inflation-unemployment combinations? Explain.5. Consider the Phillips curve πt = πt-1 – 0.5(ut – 0.01). a) What is the natural rate of unemployment? Graph the short-run and long-run relationships between inflation and unemployment? b) How much unemployment is necessary to reduce inflation by 3%? Compute the sacrifice ratio. Show your work. c) Do flexible exchange rates permit a country to pick its own unemployment-inflation trade-off target?(a) What events of the 1970s and 1980s made economists believe that the shortrun relationship between inflation and unemployment was unstable (not fixed and permanent)? (b) Explain, using a diagram(s) and the concept of stagflation, the relationship between shifts in the SRAS curve and the position of the short-run Phillips curve.
- Which of the following is correct if there is a favorable supply shock? a. the short-run aggregate supply curve and the short-run Phillips curve both shift right. b. the short-run aggregate supply curve and the short-run Phillips curve both shift left. c. the short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right. d. the short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left.Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to "Calculate," you must show how you arrived at your final answer. An economy is currently in a recession. (a) Draw a single correctly labeled graph with both the short-run and long-run Phillips curves. Label the current short-run equilibrium as point X. (b) Is the expected inflation rate greater than, less than, or equal to the actual inflation rate? (c) Will borrowers on fixed-rate loans benefit from the situation that you identified in part (b)? Explain. (d) Assume the government budget is balanced. In the absence of any discretionary policy action, will the government budget move into surplus, deficit, or remain in balance? Explain. (e) On your graph in part (a), show how the economy will adjust in the long run in the absence of any discretionary policy action.…The following graphs show the state of an economy that is currently in long-run equilibrium. The first graph shows the aggregate demand (AD) and long-run aggregate supply (LRAS) curves. The second shows the long-run and short-run Phillips curves (LRPC and SRPC). PRICE LEVEL INFLATION RATE 0 3 LRAS 4 5 LRPC 9 AD O AD LRAS 6 12 UNEMPLOYMENT RATE (Percent) 15 SRPC 18 Ⓒ SRPC - LRPC