A shock to aggregate supply will have different outcomes when there are different assumptions about the formation of the level of expected inflation. One path assumes that the level of expected inflation equals lagged inflation. The level of expected inflation changes over time. The second path assumes the level of expected inflation is anchored to a specific value and never changes. Begin in medium-run equilibrium where actual and expected inflation equal 2% in period t. Suppose the economy is at initial equilibrium at point A, as shown in the graph on the right, and there is a permanent increase in the price of oil in period t +1. How does the Phillips curve shift? 1.) Using the 3-point curved line drawing tool, draw a new Phillips curve that reflects the permanent increase in oil prices. Label your line appropriately. 2.) Using the point drawing tool, indicate where the short-run equilibrium would be as a result of the increase in oil prices. Label your point "A". 3.) Using the point drawing tool, indicate where the new potential output is located. Label your point "Yn".

A shock to aggregate supply will have different outcomes when there are different assumptions about the formation of the level of expected inflation. One path assumes that the level of expected inflation equals lagged inflation. The level of expected inflation changes over time. The second path assumes the level of expected inflation is anchored to a specific value and never changes. Begin in medium-run equilibrium where actual and expected inflation equal 2% in period t. Suppose the economy is at initial equilibrium at point A, as shown in the graph on the right, and there is a permanent increase in the price of oil in period t +1. How does the Phillips curve shift? 1.) Using the 3-point curved line drawing tool, draw a new Phillips curve that reflects the permanent increase in oil prices. Label your line appropriately. 2.) Using the point drawing tool, indicate where the short-run equilibrium would be as a result of the increase in oil prices. Label your point "A". 3.) Using the point drawing tool, indicate where the new potential output is located. Label your point "Yn".

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter14: Aggregate Demand And Supply

Section14.A: The Self Correcting Aggregate Demand And Supply Model

Problem 4SQP

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which one is true Demand‑pull inflation is caused by a decrease in short‑run aggregate supply to an equilibrium point below full employment. an increase in aggregate demand to an equilibrium point below full employment. a decrease in short‑run aggregate supply to an equilibrium point beyond full employment. an increase in aggregate demand to an equilibrium point beyond full employment. Cost‑push inflation is caused by an increase in aggregate demand to an equilibrium point beyond full employment. an increase in aggregate demand to an equilibrium point below full employment. a decrease in short‑run aggregate supply to an equilibrium point beyond full employment. a decrease in short‑run aggregate supply to an equilibrium point below full employment.
If there is a oil price shock, assuming that it is a temporary phenomenon, where eventually price decline. Can anyone help me with the following qns (Using Price Level and Real GDP as the axis titles) Explain and illustrate the short-run effect of a temorary oil price shock on macroeconomic equilibrium using the AD-AS Explain and illustrate the adjustment process back to long-run equilibrium based on the following: Self-correcting mechanism (i.e., with no policy response). Active stabilisation response (i.e., with policy response). Note, there are TWO active stabilisation polices Explain both. Based on your answers in Qn 2, does the ‘divine coincidence’ hold? Where the meaning is in relation to having no trade-off between price stability and maintaining economic activity.
Starting from a long run equilibrium, without any policy intervention, the long run impact of a temporary adverse supply shock is that prices will: a. be permanently higher and output will be restored to its long run level. b. return to the old level and output will be permanently lower. c. return to the old level and output will be restored to its long run level. d. be permanently higher and output will be permanently lowe
Refer to the diagram. The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1. Assuming no change in aggregate demand, the long-run response to a recession caused by cost-push inflation is best depicted as a: A) rightward shift of the aggregate supply curve from AS2 to AS1. B) leftward shift of the aggregate supply curve from AS1 to AS2. C) move from a to d along the long-run aggregate supply curve. D) move from a to c to d.
Refer to the diagram. The initial aggregate demand curve is AD1 and the initial aggregate supply curve is AS1. In the long run, demand-pull inflation is best shown as: A) a move from a to d. B) a shift of aggregate demand from AD1 to AD2 followed by a shift of aggregate supply from AS1 to AS2. C) a shift of aggregate supply from AS1 to AS2 followed by a shift of aggregate demand from AD1 to AD2. D) a move from d to b to a.
Which is an example of a positive supply shock? Group of answer choices: Large decrease in input prices Strong collective bargaining from unions Strict environmental protection laws Larger increase in oil prices Suppose an economy experiences a positive supply shock. What is the short-run effect on output and the price level? Group of answer choices: Output and the price level both rise. Output and the price level both fall. Output rises and the price level falls. Output falls and the price level rises.
Suppose that your economy is in long run equilibrium. The aggregate demand and aggregate supply in the market is represented by the following functions: AD:= 360 – 4Y AS: P = 20 + 4Y Something occurs in the economy and the aggregate demand changes to: AD: P = 400 – 4Y Calculate the inflation rate that occurs with the change in aggregate demand.
In our Aggregate Demand and Supply model, a decrease in Aggregate Demand would cause which of the following in the short run? Group of answer choices a) neither deflation nor inflation b) deflation and recession c) inflation and economic growth d) inflation and recession e) deflation and economic growth
Assume that aggregate demand is unaffected by the oil price spike. After the economy has fully adjusted to the oil price spike, the long-run effect is (no change, an increase, a decrease) in aggregate output and (no change, an increase, a decrease) in the price level.
Imagine that the markup practiced by firms in an economy is 5% The degree of the protection of employees is 0.1 and assume that the slope of the wage setting curve is -0.7 If production in the country's firms happens with constant returns to scale, what is going to be the equation of the short-run aggregate supply curve in terms of inflation?
(b) In recent months inflation has increased sharply in Australia and many parts of the world. Ongoing supply-side problems, rapid increase in energy prices since Russia's invasion of Ukraine, and strong demand as economies recover from the COVID-19 pandemic are all contributing to the upward pressure on prices. i) Starting from the long-run equilibrium, use a basic (static) aggregate demand – aggregate supply (AD-AS) diagram to explain the causes of the high inflation we are experiencing. ii) The Reserve Bank of Australia (RBA) raised the interest rate multiple times this year to curb inflation. Using the static AD-AS diagram, explain how the RBA is trying to achieve their goal by increasing the interest rate. What can be the likely impact of such a policy stance on the economy in the short run and long run?
A temporary "supply shock" will Select one: a. cause AD to shift down (or decrease). b. cause AD to flatten out (smaller slope). c. cause LRAS to rotate and slope upwards at a 45-degree angle. d. cause SRAS to shift either right (if it is a good shock) or left (if it is a bad shock).