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Explain and demonstrate graphically the effects of a negative supply shock in both the short-run and long-run. (Hint: Use AD-AS framework)
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- What are some of the ways in which exports and imports can affect the AD/AS model?Market Watch, May 24, 2018 discusses, "what happens if the oil rally turns into an 'oil shock' ". Graphically show the short- and long-term impact of this using the AD-AS model.Draw the AS-AD model for the following scenario: The economy is hit by a negative AD shock. Assume there is no monetary or fiscal policy implemented, and the AD shock is permanent. Make sure to include the initial equilibrium, the short-run equilibrium, and the new long-run equilibrium. Label the axes and the curves.
- Suppose the economy is initially in a long-run equilibrium. Using the AD-AS framework, show graphically what happens to output, unemployment, and the price level when there is an adverse supply shock such as a persistent increase in international oil prices due to a war in oil producing countries (think of Russia's war with Ukraine). 1. Indicate in the space provided what happens to the following variables (whether it increases, decreases or remains unchanged) in the short run after the shock occurs, and in the final long run equilibrium. Short Run Eq. Output Unemployment Price Final Long Run Eq.* *Indicate below the direction of change in the variables as the economy moves from the short run to long run equilibrium and also the final values of Y and u. Show any changes in the graph as the economy moves from short run to long run equilibrium. Output Unemployment Price Graph: (use only one graph to show the initial, short run and long run equilibrium) 2. If the government wants to…The Treasury notes that there are several ‘risks’ to its predictions. These include that “ The potential for an extended conflict in the Ukraine ... has increased the risk of supply disruptions, pushing up and increasing volatility in energy, agricultural and metals prices..... A prolonged conflict will increase the risks associated with the negative terms of trade and confidence shocks for these countries” Using the dynamic AD/AS model, illustrate and explain how an extended conflict in the Ukraine would impact on the Australian economy. Be sure to discuss the pathways by which this conflict may impact on the domestic Australian economy. Hint: Start from diagram representing the current position of the economy and then illustrate what happens, consistent with your argument, showing both short run and long run effects. The majority of the marks for this question depend on what you write.An economy experiences an adverse supply shock. a) Draw an AD-AS diagram to illustrate the effect of the shock. Be sure to include the LRAS line. b) What happens to output in the short run? What form of output gap (positive or negative) is formed? What happens to the aggregate price level in the short run? c) How will the long run equilibrium be restored? (Assume there is no fiscal and no monetary policy to help the process.) Explain and add this to your diagram. d) Does the process create inflation or deflation?
- what impact would a change that shift an economys production possibilities curve outward have on the long run aggregate supply curve?Now assume that the contraction in the Singaporean economy is mainly driven by supply side factors, Show the short-run effects of this using the AD-AS model. Carefully explain in words (100 or less).Use the basic AD-AS model to illustrate and describe the effect of unexpected increase in the oil prices on macroeconomic equilibrium output, price level and (un)employment in short-run. Additionally, also explain graphically, how the economy adjusts back to long-run equilibrium.
- Depict in the AD-AS model, an economy exhibiting a short run equilibrium with a negative output gap resulting from a decline in AD caused by falling investment spending. What is true about the level of unemployment in this circumstance? What is true about the utilization of capital in this circumstance? What are the implications of your statements in parts a and b for long run adjustments in resource prices? How will these changes in resource prices impact the economy in the long run? Depict this change in your graph.Q)Using the dynamic AD/AS model, explain why Kennedy is concerned about the state of the global economy. What difference might it make to the Australian economy if the trading relationship between China and Australia deteriorates as political tensions continue to increase?Suppose an economy is hit by natural disaster and its natural resources decreases. Show graphically using AD-AS model how the price level and output are affected in the short-run. Can the government use monetary policy to offset the effects on both price level and output simultaneously, explain?