If the US economy is currently experiencing weak real GDP growth (1.5%), high unemployment (7%), and rising inflation (4% and increasing), which AS/AD shock is the most likely cause of these symptoms? Short Run Aggregate Supply shifts up Aggregate Demand shifts in Aggregate Demand shifts out Long Run Aggregate Supply shifts out
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- Aggregate demand curve of an economy is given by AD = 50 - 0.2P, the long-run aggregate supply, LRAS, is 30 and the short-run aggregate supply is given by SRAS = 0.3 P (all output measures are in US$ billions and the price level is given as an index number). A negative demand shock shifts the aggregate demand curve to the left. The new AD curve is given by AD = 49 - 0.2P. Find the new short-run equilibrium. Find the output gap as a percentage. What is the unemployment rate based on Okun's Law if the natural rate of unemployment is 4%? Short-run equilibrium: Price level is and the output is US$ billions Output gap as a percentage is: %. Unemployment rate is: %.Russia is a major exporter of oil, wheat, and palladium. The war in Ukraine lead to a negativesupply shock and push up the price of gasoline. How does the negative supply shock influencethe short-run aggregate supply curve? If the long-run aggregate supply curve does not change,how does the negative supply shock affect the AD-AS equilibrium?Use the AS-AD model to analyze the impact on the U.S. economy as a result of each of the listed events. Mention if AD and/or AS shift and in which direction. Also explain what the country will experience with respect to increase or decrease in short-run equilibrium real GDP and increase or decrease in the equilibrium price level. For each event, assume that the economy is originally in a full- employment equilibrium, mention if in the new equilibrium there is a recessionary gap or an inflationary gap. A) Congress raises income taxes. B) The Federal Reserve decreases the target for the federal funds rate. C) Migration to the US increases the working- age population. DJ Appreciation in the international value of the dollar.
- Oil price shocks have an evident impact on the short run aggregate supply curve. With the help of a graph demonstrate how rising oil prices affect the SRAS and explain what other factors can cause this shift.Describe an economic environment which would be characterized by the term "stagflation". Using an AD - AS diagram, depict and given an example of a macroeconomic shock that would take an economy from a long - run equilibrium to a situation of stagflation. Label all points on the graph completely and point out the key characteristics associated with stagflation on your graph.For each situation below, analyse whether it shifts the aggregate demand (AD) curve, the aggregate-supply (AS) curve, both, or neither. Then, if it does shift a curve, construct the AD-AS diagram to show the effect on the economy in the long-run. a) One extraordinary impact of COVID-19 pandemic to the U.S. economy is a massive increase in saving. U.S. recorded nearly tripled saving over the first two quarters of 2020, from $1.59 trillion annualized in the first quarter to $4.69 trillion in the second, which is by far the biggest increase in modern history. b) The prolonged monsoon rain has caused the production of vegetables in Cameron Highlands fell by about 30%. It has severely impacted a lot of crops, including fruits and flowers. Besides, labor shortages due to the pandemic makes the matters worse.
- 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 wordsThe graph below depicts an increase in aggregate demand due to an increase in net exports. This increase in aggregate demand is depicted as a shift from AD to AD₁. Price Level LRAS X AD Real GDP AS AD Tools AS, 0 a. In the long run, aggregate supply will adjust to move the economy back to the full-employment level of output. Show this shift using the graph above. Instructions: Use the tool provided "AS₁" to show the movement back to full-employment output. Plot only the endpoints of the line, keeping AS, parallel to AS with the appropriate Intersection (2 points total). b. How does the new long-run equilibrium compare to the Initial full-employment level before the Increase in net exports? O The price level is higher, but output is lower. O The price level is lower, but output remains the same. O The price level is lower, but output is higher. O The price level is higher, but output remains the same.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…
- For each scenario listed below, start by drawing a fully-labeled Aggregate Supply-Aggregate Demand diagram of an economy in long-run equilibrium. Then, shift the appropriate curve(s) – either AD or SRAS – dictated by the events given. Third, identify the short-run and long-run effects of each event on the price level, P and the real output, Y. a. The Federal government increases spending on national defense. b. Suppose that U.S. trading partners (e.g., China or Germany) impose a tax/tariff on US exports to these countries.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?Aggregate Demand and Aggregate Supply - End of Chapter Problems 10. There were two major shocks to the U.S. economy in 2007, leading to the severe recession of 2007-2009. One shock was related to oil prices; the other was the slump in the housing market. In the accompanying graph, shift the AD and/or SRAS curves and move the equilibrium point to its new position to show the effects of the following two shocks on GDP in the AD-AS framework. a. Data taken from the Department of Energy indicate that the average price of crude oil in the world increased from $54.63 per barrel on Jan. 5, 2007, to $92.93 on Dec. 28, 2007. b. The Housing Price Index, published by the Office of Federal Housing Enterprise Oversight, calculates that U.S. home prices fell by an average of 3% in the 12 months between January 2007 and January 2008. c. As a result of the two shocks, real GDP decreased price level increased , whereas the aggregate Aggregate price level Incorrect E [1] Real GDP SRAS AD
