3. The equation of exchangeThe equation of exchange is given by MxV=PxQ, where M is the money supply, V is the velocity of money, P is the economy's price level,and Q is real GDP.Suppose the following graph shows the current aggregate demand (AD) and aggregate supply (AS) curves in a hypothetical economy.PRICE LEVEL00500234REAL GDP (Trillions of dollars)Nominal GDP in this economy is SADtrillion.5Becausemoney supply. This illustrates theIf the velocity of money is 3, the money supply in this economy is6Based on the new price level, the new money supply must be6 4ADShift the AD curve on the previous graph to show the effects of a decrease in the money supply.Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps backto its original position, just drag it a little farther.AStrillion in the long run if the velocity of money remains at 3.the percentage decrease in the price level isthe percentage decrease in the

A higher velocity often denotes a more vigorous and effective money circulation, which promotes…

Nominal GDP in this economy is trillion. If the velocity of money is 3, the money supply in this economy is Shift the AD curve on the previous graph to show the effects of a decrease in the money supply. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. Based on the new price level, the new money supply must be S Because money supply. This illustrates the trillion in the long run if the velocity of money remains at 3. the percentage decrease in the price level is the percentage decrease in the

Nominal GDP in this economy is trillion. If the velocity of money is 3, the money supply in this economy is Shift the AD curve on the previous graph to show the effects of a decrease in the money supply. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. Based on the new price level, the new money supply must be S Because money supply. This illustrates the trillion in the long run if the velocity of money remains at 3. the percentage decrease in the price level is the percentage decrease in the

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter26: Monetary Policy

Section: Chapter Questions

Problem 3P

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In early 2017, policymakers at the Federal Reserve forecast that real GDP during 2017 would increase faster than potential GDP and that the inflation rate for the year would be about 1.9 percent. Source: Federal Open Market Committee, "Advance Release of Table 1 of the Summary of Economic Projections to be Released with the FOMC Minutes," March15, 2017. Fill in the missing values in the table with estimates that are consistent with these forecasts. Assume that the growth rate for real GDP between 2016 and 2017 is 0.32 percentage points higher than the percentage change in potential output between those years (rounded to two decimal places). 2016 2017 Real GDP $16.7 trillion $nothing trillion Potential GDP $16.9 trillion $17.1 trillion GDP Deflator 111.5 nothing (Enter your responses rounded to one decimal place.)
2. Why does the aggregate demand curve slope downward? The following graph shows the aggregate demand curve in a hypothetical economy. Assume that the economy's money supply remains fixed. PRICE LEVEL 160 150 140 130 120 110 100 90 80 Aggregate Demand Aggregate Demand 0 100 200 300 400 500 600 700 800 REAL GDP (Billions of dollars) Which of the following are reasons the aggregate demand curve is downward sloping? Check all that apply. A lower price level makes domestically produced goods less expensive than foreign goods. A higher price level decreases the real value of consumers' assets. A lower price level increases consumption through the income effect. As the aggregate price level rises, the cost of borrowing money will the quantity of output demanded to effect. causing This phenomenon is known as the
The following graph shows several aggregate demand and aggregate supply curves for an economy whose potential output is $4 trillion. The curves are labeled a, b, c, and d. Three points on the graph are also indicated by grey stars and labeled X, Y, and Z. PRICE LEVEL AD 160 150 140 130 120 LRAS 110 B 100 90 80 0 Description с 1 d X 2 3 6 4 5 REAL GDP (Trillions of dollars) SRAS if the expected price level is 120 Identify which curve on the previous graph corresponds to each of the following descriptions. If the curve described is not shown on the graph, choose Not Shown. In the descriptions, AD represents aggregate demand; SRAS represents short-run aggregate supply; LRAS represents long-run aggregate supply. SRAS if the expected price level is 140 SRAS if the expected price level is 110 a O O O O O b 7 O O O с b O O 8 d O O O O O Not Shown ? O O O O O Suppose the economy is currently in short-run equilibrium at point Z. In this case, the economy is producing at an output level…
Question 3 of 22 ⒸMacmillan Learning The interest rate effect is the change in exports and imports resulting from changes in the interest rate caused by changes in the aggregate price level. is the change in interest rates caused by changes to government purchases. O is the change in investment spending and government purchases caused by changes in money demand. O is the change in consumer and investment spending due to changes in interest rates resulting from changes in the aggregate price level. O is the change in real GDP caused by the Federal Reserve adjusting target interest rates. 4
Suppose an economy is in long-run equilibrium. The centra bank reduces the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. LRAS Aggregate Supply * Aggregate Demand Quantity of Output Aggregate Demand Aggregate Supply Now adjust the graph to show the new long-run equilibrium. What causes the economy to move from its short-run equilibrium to its long-run equilibrium? O Nominal wages, prices, and perceptions adjust upward to this new price level. The government increases spending to increase aggregate demand. The government increases taxes to curb aggregate demand. O Nominal wages, prices, and perceptions adjust downward to this new price level. Which of the following is true according to the sticky-wage theory of aggregate supply as a result of the decrease in th money supply? Check all that apply. Nominal wages at the initial equilibrium are equal to nominal wages at…
QUESTION 26 Figure 34-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. "2 "1 MS -MD 2 -MD₁ 1 P2 P₁ 1₂2 1₁ AD Refer to Figure 34-2. If the graphs apply to an economy such as the U.S. economy, then the slope of the AD curve is primarily attributable to the a. interest-rate effect. b. Fisher effect. c. exchange-rate effect. d. wealth effect.
The following graph shows several aggregate demand and aggregate supply curves for an economy whose potential output is $4 trillion. The curves are labelled a, b, c, and d. Three points on the graph are also indicated by grey stars and labelled X, Y, and Z. PRICE LEVEL 160 150 140 130 120 110 100 90 80 0 с 1 d a 2 3 5 REAL GDP (Trillions of dollars) 6 7 b ? Identify which curve on the previous graph corresponds to each description in the following table. If the curve described does not appear on the graph, choose Not Shown.
The graph shows a long-run aggregate supply curve and a short-run aggregate supply curve. Draw an arrow along one of the curves that illustrates a rise in the price level when the money wage rate remains unchanged. Label it 1. Draw an arrow along one of the curves that illustrates a rise in the price level accompanied by the same percentage rise in the money wage rate. Label it 2. An increase in the price level when the money wage rate remains unchanged increases OA. potential GDP OB. the quantity of real GDP supplied OC. aggregate supply OD. factor prices by the same percentage as the increase in the price level
Question Consider that the Ghanaian economy is a small and close, which is characterised by the following. AD=C+I+G+NX C=a+bY* Y*=disposal income T=T0 I=I0 G=G0 Md/P=Ld(Y,i) Ms=money supply ,which is given . AD=Aggregate demand ,C=consumption,G=Government expenditure ,T=Tax,P= Pricelevel,I=Investment,NX=Netexports (a) Consider an increase in Government spending ∆ > .Assume for now that both price and expected price are fixed. Also assume that government does not implement any other policy than the increase in Government spending. What is the effect of this policy on the goods market? (b) What is the effect on equilibrium in the money market? Present your answer in swells labelled diagram, showing both money supply and demand before the policy was implemented, and that after the policy was implemented in the same graph. (c) Solve for equilibrium in the goods market. d) Suppose the policy change is rather a increase in real money supply not a decrease in government spending.What…
The following graph shows an increase in short-run aggregate supply (AS) in a hypothetical economy where the currency is the dollar. Specifically, the short-run aggregate supply curve shifts to the right from AS, to AS₂, causing the quantity of output supplied at a price level of 100 to rise from $200 billion to $250 billion. PRICE LEVEL 200 175 150 125 100 75 50 25 0 0 50 AS, AS 100 150 200 250 300 350 400 QUANTITY OF OUTPUT The following table lists several determinants of short-run aggregate supply. Regulations on the firm Human capital Inflation expectations Complete the table by selecting the changes in each scenario necessary to increase short-run aggregate supply. Change Necessary to Increase AS
Refer to the table below. Real Output Demanded, Billions Price Level Real Output Supplied, Billions $ 506 108 $ 513 508 104 512 510 100 510 512 96 507 514 92 502 Instructions: Enter your anwers as whole numbers. A). What is the equilibrium level of output? What is the equilibrium price level? B). Suppose that aggregate demand increases such that the amount of real output demanded rises by $ 7 billion at each price level. Insert the new values for real output demanded in the table below. Real Output Demanded, Billions New Real Output Demanded, Billions Price Level Real Output Supplied, Billions $ 506 108 $ 513 508 104 512 510 100 510 512 96 507 514 92 502 What is the new equilibrium level of output? What is the new equilibrium price level? By what percentage will the price level increase? Will this inflation be demand-pull inflation or will it be cost-push inflation? C) If potential real GDP ( that is, full-employment GDP) is $ 510…
The following graph shows the aggregate demand curve in a hypothetical economy. Assume that the economy's money supply remains fixed. PRICE LEVEL (CPI) 160 150 140 130 120 110 100 90 80 0 Aggregate Demand 100 200 300 400 500 REAL GDP (Billions of dollars) 600 700 800 ? Which of the following are reasons the aggregate demand curve is downward sloping? Check all that apply. A higher price level makes domestically produced goods more expensive than foreign goods. A lower price level leads to a lower interest rate. A lower price level increases the consumption of complementary goods. As the aggregate price level rises, the purchasing power of households' saving balances will demanded to This phenomenon is known as the effect. , causing the quantity of output