n this section, the context is a large negative shock to autonomous consumption in an open economy. You may assume the economy is initially at a medium run equilibrium. Aggregate demand can decline for many reasons. Give a specific example of when you would choose to model the onset of a recession by a fall in autonomous consumption and explain why.

n this section, the context is a large negative shock to autonomous consumption in an open economy. You may assume the economy is initially at a medium run equilibrium. Aggregate demand can decline for many reasons. Give a specific example of when you would choose to model the onset of a recession by a fall in autonomous consumption and explain why.

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter20: Aggregate Demand And Supply

Section: Chapter Questions

Problem 3SQP

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The context is a large negative shock to autonomous consumption in an open economy. You may assume the economy is initially at a medium run equilibrium. Aggregate demand can decline for many reasons. Give a specific example of when you would choose to model the onset of a recession by a fall in autonomous consumption and explain why. Use graphs if possible.
In the past two decades, the government of Qatar has made significant investments to increase the level of infrastructure and human capital in the country. Suppose the accompanying graph illustrates the aggregate demand (AD), short‑run aggregate supply (SRAS), and long‑run aggregate supply (LRAS) curves for Qatar before these investments were made. Assume all three curves were impacted by these investments. Adjust the graph to show Qatar’s new long‑run macroeconomic equilibrium.
As you know, supply and demand shifts are caused by one of their determinants. Shifts in aggregate demand (AD) show the effect of events on price level and Real GDP. Any event that causes a change in consumer, business, or government spending or any change in net exports (C+l+G+Xn) will shift AD. Any event that causes a change in production costs or increases productivity will shift aggregate supply (AS). Decide if the following events are Micro, shifting supply or demand, or Macro, shifting AD or AS. Give the direction in which the graph shifts. Demand Situation Aggregate Supply Aggregate Demand Supply Sales of Atlanta Braves gear grows with the success of the team. 1. The President and Congress pass a trillion dollar stimulus bill to provide aid during recession. 2. 3. Salmonella outbreak in peanut processing plants threatens lunches for school children. 4. Pomegranates are shown to be cancer fighting superfoods. Value of U.S. dollars declines, exports increase. 5. Global oil prices…
(Note: All your answers should be rounded to the nearest hundredth. Example: 12.034 =>12.03, 5.175=>5.18) For each of the following situations, use an AD/AS model to describe what happens to price levels and output in the United States in the short run. In each case assume the economy starts in long- and short-run equilibrium, and show the appropriate shifts in the AS or AD curves. Suppose that the AD and AS curves are given as: AD: AS: P=6.1-0.2 Y(GDP) P= -1 +0.15 Y(GDP) Using Excel create a spreadsheet with the column headings Y, AD,JAS, G, and T. Let's start with no change in G, and T. Fill in the spreadsheet's cells for Y= 19.0 to Y= 21.0 in increments of 0.1. What is the equilibrium GDP? What is the equilibrium P? Now, there is a decrease in Tax (T), i.e., tax cut by $1 (trillion). It is assumed that an 1 unit decrease in T shifts the AD curve to the right by 0.08 units. If P and Y (GDP) won't change immediately, what happens to the nation's output? (surplus, shortage, or no…
Suppose, in the nation of Xurbia, after a period of sluggish growth, Xurbian consumers expect the economic activity to improve significantly; illustrate the effect of this by shifting the aggregate demand (AD) curve in the appropriate direction. Provide your answer below: Level
Consider a macro-economy that was initially at equilibrium. Using an aggregate demand and aggregate supply diagram model of the economy, graphically illustrate and discuss the short-run and long-run effectsof the following events upon the economy:(a) The imposition of a carbon tax upon local big polluting companies;(b) An appreciation in the foreign exchange rate value of the economy’s currency;(c) A major trading partner’s economy fall into recession;(d) The country’s main exports fall in price while the goods the country imports from abroad rise in price
Consider the economy of Panda Republic which is characterized by the following IS-LM model. IS equation: Y = C(Y - T) + I(Y , i ) + G LM equation: i = i (Hint: You must draw the graph to answer the following questions) a. In 2008, consumer confidence fell significantly due to fears of recession. How would this affect the economy? Describe graphically. Answer: The fall in consumer confidence would [ Select ] aggregate consumption. Graphically, the [Select] v curve shifted [ Select ] . As a result, the output ( Select] Given the interest rate, investment [ Select] The economy fell into a recession. b. In response, the government implemented an expansionary fiscal policy by cutting taxes. Describe graphically the effects on the economy. Answer: The tax cut would [ Select ] consumption, shifting the [Select] [ Select ] .As a result. curve the output [ Select ] Given the interest rate, investment ( Select ] The economy would get out of the recession. c. Suppose that the government was…
Complete the following table by matching the macroeconomic assumptions about aggregate supply to the appropriate school of thought. Assumption Classical Keynesian Only an increase in aggregate demand can move an economy out of a recession and back to potential real GDP quickly. Product prices and wages tend to be inflexible. The following graph shows the aggregate demand (ADAD) and aggregate supply (ASAS) curves for a hypothetical economy that is currently operating below its full-employment output level. That is, the economy is currently in a recession. The aggregate supply curve (ASAS) in this diagram is consistent with the view of aggregate supply. According to this viewpoint, the government should spending in response to the recession. Shift the appropriate curve on the graph to illustrate the impact of this change in government spending. ADASPRICE LEVELREAL GDP (Trillions of dollars)AD AS The prescribed…
Consider the aggregate supply-aggregate demand (AD-AS) model that we saw in class. Assume that prices are fixed in the short run and are fully flexible in the long run. The initial full-employment level of output is y-900 and the initial price level is p= 100: The aggregate demand curve is given by Y=1500 –6P: Scenario 2, short run: A major earthquake destroys a part of the economy's capital stock and reduces the full-employment level of output shifts to y = 880: In the short run, the output is and the price level is Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard may automatically delete it and you should not do anything about it. In case of percentages, do not type in the percentage symbol "%".
The following questions relate to long-run macroeconomic equilibrium and the stock market boom. Assume that a hypothetical economy is at long-run macroeconomic equilibrium, with full employment and stable prices. Suddenly the stock market prices increase much more than expected, increasing investor’s wealth, and causing a short-term period of unusually increased optimism about the future of the economy. Only need help with Subparts 4-5 In the short-run, will the AS curve or the AD curve shift, and in which direction will it shift? In the short-run, what will happen to the price level and quantity of output (real GDP)? Explain what, if any, impact will there likely be on workers’ wages, and the reasons for this impact. In the long-run, which curve will shift due to the change in wages and price expectations created by the stock market boom? In which direction will it shift? When the economy returns to its long-term output level, how will the new long-run macroeconomic equilibrium…
Suppose that the price level is constant and that investment decreases sharply. How would you show this decrease in the aggregate expenditures model? What would be the outcome for real GDP? How would you show this fall in investment in the aggregate demand–aggregate supply model, assuming the economy is operating in what, in effect, is a horizontal section of the aggregate supply curve?
Question 24 Consider a standard AD-AS model. If the marginal propensity to consume is zero, a temporary tax cut leads to a small increase in inflation and a large decrease in unemployment in the short run. Answer True or False. Remember to include your explanation.