Suppose that an economy begins in equilibrium at E, as depicted in the graph to the right. Assume that the economy follows the Classical Model assumptions. a. Using the line drawing tool, draw a new aggregate demand (AD) curve reflecting a decrease in the amount of money in circulation. Properly label this line. Carefully follow the instructions above, and only draw the required objects. Price level 140 LRAS 130- 120- 110- E₁ 100- 90- 80- 70- 60+ -O -2 6 8 AD 10 12 14 16 Real GDP ($ trillions)

Suppose that an economy begins in equilibrium at E, as depicted in the graph to the right. Assume that the economy follows the Classical Model assumptions. a. Using the line drawing tool, draw a new aggregate demand (AD) curve reflecting a decrease in the amount of money in circulation. Properly label this line. Carefully follow the instructions above, and only draw the required objects. Price level 140 LRAS 130- 120- 110- E₁ 100- 90- 80- 70- 60+ -O -2 6 8 AD 10 12 14 16 Real GDP ($ trillions)

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter10: Dynamic Change, Economic Fluctuations, And The Ad-as Model

Section: Chapter Questions

Problem 1CQ

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In the AD/AS model, what prevents the economy from achieving equilibrium at potential output?
How is pressure for inflationary price increases shown in an AD/AS model?
Suppose that an economy begins in equilibrium at E, as depicted in the graph to the right. 140- Assume that the economy follows the Classical Model assumptions. LRAS 130- a. Using the line drawing tool, draw a new aggregate demand (AD) curve reflecting an increase in the amount of money in circulation. Properly label this line. 120- 110- Carefully follow the instructions above, and only draw the required objects. E, 100- 90- 80- AD 70- 60- 10 12 14 16 Real GDP ($ trillions) Price level
Urgentttt!!! Use the IS-LM model to answer this question. Suppose there is a simultaneous increase in government spending and reduction in the money supply. Explain what effect this particular policy mix will have on output and the interest rate. Based on your analysis, do we know with certainty what effect this policy mix will have on investment? Explain.
8a. Assume that an economy is at equilibrium at its potential GDP at $10 trillion and aprice level of 100. What would be the short-run impact of a significant fall in consumer confidence about the future? Provide an AD/AS model to support your answer. b. What policy would you recommend to the chairperson of the Federal Reserve? Be specific. Show the effect of this policy on your graph part a. c. What are the major goals of the Fed's monetary policy?
7 Assume that initially everyone expected the price level to stay the same when the Federal Reserve announces that it will reduce the rate of money growth in one year. People now expect prices to rise less quickly. Use the AS/AD model to explain what happens to prices at the time of the announcement. Use either a graph or equations of the model.
2. Please use a graph to produce aggregate supply in classical model under the assumption of nominal wage or money wage.
You have been hired as a Marco Economist by the President of the United States to help evaluate the recentannouncement by Federal Reserve chairman Ben Bernanke that the FED will be increasing interest rates again.Ben Bernanke has justified the move on the grounds that the economy continues to be strong. Answer thefollowing questions. Provide a graphical explanation for your answers whenever possible. 1. What is the fed trying to do?A. slow down the economyB. stimulate the economyC. remains unchanged 2. How is the fed doing it?A. buying bondsB. selling bondsC. remains unchanged 3. What happens to bond prices?A. increaseB. decreaseC. remains unchanged 4. What happens to the interest rate?A. increaseB. decreaseC. remains unchanged
Explain if, and why, you agree, or do not agree, with the following statement [when answering, assume that, in each time period, the economy is described by a static IS-LM model, with consumption and investment depending on contemporaneous variables only]:"In a closed economy wherke the central bank chooses the money supply, the prices of stocks at time t, €Qt, will unambiguously rise if, from time t onwards, government purchases of goods and services, G, go up".
An economy has: R = 10 +.ly, C= 14 + 9YD, G= 25, I = 75 -r, NX = 30 -.06y - .5p, MD = 25y-r, MS = 15 and ASo = 2p. A negative AS shock occurs: AS, = 2p – 60. a. Provide a diagram showing AS/AD to illustrate how real GDP and the price level are affected by this AS shock. A government can offset this AS shock by increasing the money supply OR increasing government spending. They won't do both. Calculate level of money supply MS= b. and the level of government spending G = that would be necessary to offset this AS shock.
3)Show and explain the effects of an increase in aggregate demand in the long-run and short-run by using AD–AScurves.2)Show and explain by using a graph, what will happen to the price level and real GDP if the quantity of moneyincreases and the increase is not anticipated; that is, the price level is not expected to change.1)By using aggregate demand (AD) and aggregate supply (AS) curves, show and explain the effects of ananticipated increase in money supply on macroeconomic equilibrium according to Rational ExpectationsHypothesis.
COURSE: MACROECONOMICS - IS-LM MODEL Analyze and plot IN DETAIL the effect on the money market caused by an increase in the sensitivity of money demand to the level of income (i.e. "k*Y" in the equation of the money Market L = k*Y - h*i). Then, explain and plot how the equilibrium changes in the IS-LM model.