Suppose the economy is currently in equilibrium, with unemployment equal to the natural rate, andthat people form expectations rationally. If the Federal Reserve announces that it is going todecrease the money supply, then:the economy will move to a lower price level but remain at potential GDP.the economy will permanently move to a higher level of output and a higher price level.the economy will permanently move to a lower level of output and a lower price level.the economy will move to a higher GDP level but remain at a constant price level.

Unemployment refers to a state at which a person who is actively looking for the work but is unable…

Suppose the economy is currently in equilibri that people form expectations rationally. If th decrease the money supply, then: the economy will move to a lower price level bu the economy will permanently move to a higher the economy will permanently move to a lower the economy will move to a higher GDP level bu

Suppose the economy is currently in equilibri that people form expectations rationally. If th decrease the money supply, then: the economy will move to a lower price level bu the economy will permanently move to a higher the economy will permanently move to a lower the economy will move to a higher GDP level bu

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 5PA

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7:511 Price level LRAS SRAS AD Real GDP 33) Refer to Figure 15-6. In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to lower tax rates. B) raise interest rates. c) lower interest rates. D) raise income taxes. 241 Whirh of the frllnwinn dacrihac what the Fard B I U west the a q w er ty uio p a s dfghjk I z x c v b n m 123 space return !!
The graph shows an economy's aggregate demand and aggregate supply curves and potential GDP. Does this economy have an inflationary gap or a recessionary gap? How does this economy return to full employment? This economy has _______ gap. It returns to full employment as _______. A. an inflationary; the money wage rate rises B. a recessionary; potential GDP increases C. a recessionary; the money wage rate falls D. an inflationary; aggregate demand decreases
Illustrate each of the following situations with a graphshowing AS and AD curves, and explain what happensto the equilibrium values of the price level and aggregateoutput:a. A decrease in G with the money supply held constant bythe Fedb. A decrease in the price of oil with no change ingovernment spendingc. An increase in Z with no change in governmentspendingd. An increase in the price of oil and a decrease in G
In the basic New Keynesian model, suppose that there is an increase in government spending. • First, suppose that the central bank does nothing (accommodates the shock). Illustrate onthe graphs and explain what will be the effects on inflation and output? • Second, suppose that economy initially has inflation equal to the central bank’s inflationtarget and an output gap of zero. What action do you expect the central bank wouldundertake? Illustrate you answer on the graph and explain. PLEASE SHOW ALL HAND WRITTEN STEPS AND WORK!
Explain the effect, if any, that each of the following occurrencesshould have on the aggregate demand curve.a. The Fed lowers the discount rate.b. The price level decreases.c. The federal government increases federal income tax rates inan effort to reduce the federal deficit.d. Pessimistic firms decrease investment spending.e. The inflation rate falls by 3 percent.f. The federal government increases purchases to stimulatethe economy.
Suppose you are chair of the Federal Reserve in 1995. You believe that potential output follows the dotted line after 1993, but in actuality, it follows the line denoted "True potential output." The current state of the economy is given by the curve "Actual output." Given the information in the figure, you _________, because you believe the economy is in a ________, but your advice instead OUTPUT O 1993 True potential output 1995 Actual output Perceived potential output lower interest rates; recession; accelerates inflation TIME O raise interest rates; boom; accelerates a recession keep interest rates the same; boom; accelerates inflation O Not enough information is given. lower interest rates; boom; increases unemployment
Which one of the following variables is not held constant along a given aggregate demand curve? Select one: A. fiscal policy B. monetary policy C. expectations about inflation D. the price level O E. the exchange rate
01 10 CO xp 381 In the figure, the economy is at an equilibrium with real GDP of $20 trillion and a price level of 110. As the economy moves toward its ultimate equilibrium, the curve shifts, because 0 0 0 0 0 A. aggregate demand; leftward; the money wage rate rises B. aggregate supply: rightward; the money wage rate falls OC. potential GDP; leftward; the money wage rate falls D. aggregate demand; rightward; the money wage rate falls OE. aggregate supply; leftward; the money wage rate rises 130- 120- 110- 100- Price level (GDP price Index, 2012 = 100) Potential GDP 90- AS AD 19.0 19.5 20.0 20.5 21.0 21.5 22.0 Real GDP (trillions of 2012 dollars) ✓ ✓ 5
24. Firas a university student, trying to convince his colleague Bilal that the aggregate demand only shifts upward and the main reason is the change in prices: * Firas is almost right since the AD can O shift downwards and the price change is the main factor causing the shift Firas is wrong because the AD can shift both up and down although the prices do not cause a shift in AD Firas is wrong since the AD can shift O both ways and the price can cause the shift. Firas is right since the AD only shifts upwards and the price is the initial factor behind the shift 25. While looking at an economic cycle
Which of these will cause aggregate demand to shift to the right? a. Increasing tax rates on salaries and income of consumers O b. Reducing the spending of the government O c. Importing more products from other countries d. Lowering down interest rates
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.
Suppose the economy is in long-run equilibrium. If there is a sharp increase in the price of a critically important resource that is used in an economy such as oil and higher expected inflation while, at the same time, consumers become increasingly confident about their employment prospects and businesses more optimistic regarding the profitability of their investments, then we would expect that in the short-run, A. the price level will fall, and real GDP might rise, fall, or stay the same B. real GDP will fall and the price level might rise, fall, or stay the same. C. the price level will rise, and real GDP might rise, fall, or stay the same. D. real GDP will rise and the price level might rise, fall, or stay the same.