- 7), where b = 2, = 1/5, and R - T = 0.01. ock where the economy goes from ā = -0.01 to ā = 0.0, then short- ercentage points (enter a negative number for a fall in short-run output in short-run output).
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- QUESTION 8 In the model: Y=v - B(r,-r)- we, + e T,- m + a(v, -v;)– yAe, + e" !! What is the expected short-run effect of a positive demand shock (6, > 0) on output? O positive O negative O neutral O ambiguousSuppose the economy of the hypothetical country “X” is currently in equilibrium at point A on thegraph. There were two major shocks to the economy in 2020.First shock was related to oil prices; the other was related to consumer confidence about futurebusiness conditions. Oil Shock: The economy X faced a rise in the average price of oil along with the rise of world price ofoil.E) Would an increase in oil prices cause a demand shock or a supply shock? Redraw the diagram toillustrate the effect of this shock by shifting the appropriate curve. What happens to theAggregate output and price level after the shock? (3)F) If policymakers wish to prevent the equilibrium output from changing in response to the oilprice increase, should they use contractionary or expansionary fiscal policy? (Redraw the graphfrom part E and show the change) (4)G) Even if the economy moves back to original Aggregate output, will there be any drawback? (1)Consumer Confidence Index: The Consumer Confidence Index…The figure above shows the Aggregate Supply (AS) and Aggregate Demand (AD) curves for an economy that is currently at equilibrium producing Y0 units of output. What would be the result of a positive shock to AS if there is no change to AD? Question 12Select one or more: a. lower output levels b. higher price levels c. lower price levels d. higher output levels
- The economy of Ashenvale is currently in a long-run equilibrium, depicted by point E. on the graph. Suppose that there is an AS shock to the economy and the AS curve shifts to the right, as shown by the AS, curve on the graph. Which of the following factors could have caused this shock? A. a decrease in investment expenditures B. a decrease in the price of oil C. a decrease in government spending OD. an increase in exports OE. an increase in the factor prices Price Level (P) 2,400- 2,000- 1,600- 1,200- 800- 400- 0+ 2,000 Economy of Ashenvale 4,000 ¡Y* 6,000 Real GDP (Y) ASO Eo 8,000 AS₁ ADO 10,0The figure above shows the Aggregate Supply (AS) and Aggregate Demand (AD) curves for an economy that is currently at equilibrium producing Y0 units of output. What would be the result of a negative shock to AD if there is no change to AS? Question 13Select one or more: a. Decrease in output b. Increase in price levels c. Decrease in price levels d. Increase in outputYou are hired by the Council of Economic Advisors (CEA) as an economic consultant.The chairperson of the CEA tells you that she believes the current unemployment rate istoo high. The unemployment rate can be reduced if aggregate output increases. She wantsto know what policy to pursue to increase aggregate output by 300 billion TL. The bestestimate she has for the MPC is 0.8. Which of the following policies should yourecommend?a) Increase government purchases by 75 billion TL.b) Reduce taxes by 75 billion TL.c) Reduce taxes by 75 billion TL and to increase government purchases by 75 billion TL.d) Reduce the budget deficit by 300 billion TL
- The graph shows the aggregate demand and long-run aggregate supply (LRAS) curves for a given economy. Show the effect of a real shock that results in potential real GDP changing to 6% by shifting the relevant curve or curves. Inflation rate (%) 4 LRAS 12 11 10 9 8 6 3 Aggregate Demand 2 1 0 -4 -2 ° 2 4 6 8 10 Real GDP growth rate (%) 12 14 16 Which three factors could have caused this change in potential real GDP? Assume this is a typical economy relying on inputs such as coal and oil. Factors Answer Bank riots and political instability good farming weather oil price increase coal price decrease increased consumer confidence an improvement in technology an increase in exports a major bird flu pandemicShipping costs have increased dramatically in the past few months. This is a and tends to O negative supply shock, increase prices O positive supply shock, increase prices O negative demand shock, increase prices O positive supply shock, decrease pricesPlease write on the space provided what happens to each variable -- indicate whether each variable increases, decreases, or remains unchanged. Please show in the graphs the initial equilibrium, short run equilibrium, and final long run equilibrium. If possible, please provide only two graphs, one for IS-LM and one for AD-AS that show all of the equilibrium positions Suppose the economy is initially in a long-run equilibrium. Starting from this position, assume that an exogenous shock such as the Covid 19 pandemic pushes the economy away from the equilibrium. If the government chooses not to intervene in the economy, what will happen to the above variables in the long run? Please indicate in the space below what will happen in the transition from the short run back to the long run equilibrium and the final values of output and unemployment in the long run. Short-run Output __________________ Unemployment ___________________ Prices __________________…
- In 1939, with the U.S. economy not yet fullyrecovered from the Great Depression, PresidentFranklin Roosevelt proclaimed that Thanksgivingwould fall a week earlier than usual so that theshopping period before Christmas would be longer.(The policy was dubbed “Franksgiving.”) Explainwhat President Roosevelt might have been trying toachieve, using the model of aggregate demand andaggregate supplyPlease write on the space provided what happens to each variable -- indicate whether each variable increases, decreases, or remains unchanged. Please show in the graphs the initial equilibrium, short run equilibrium, and final long run equilibrium. If possible, please provide only two graphs, one for IS-LM and one for AD-AS that show all of the equilibrium positions Suppose the economy is initially in a long-run equilibrium. Starting from this position, assume that an exogenous shock such as the Covid 19 pandemic pushes the economy away from the equilibrium. Using the IS-LM and AD-AS framework, indicate what happens in the short run to output, unemployment, prices, interest rate, consumption, investments, and real money balances, as the economy moves from long-run equilibrium to short-run equilibrium. What economic condition is the economy in after the shock? __________________ Short-run Output ________________ Unemployment _________________ Prices…Use the graph to answer the question that follows. Price LRAS SRAS Level K AD₂ AD₁ 0 Y Output Assume that the economy is in the long-run equilibrium as shown on the accompanying graph. Which of the following best describes the self-correcting long-run adjustment if the economy had undergone a positive AD shock? O Price will increase, short-run aggregate supply will shift leftwards in order to bring back the economy to its long-run equilibrium. O The interest rate will go down, increasing the investment, thus further increasing the aggregate demand to attain the equilibrium. O The long-run equilibrium can only be attained again if the long-run aggregate supply curve shifts outwards. O Price will decrease, short-run aggregate supply will shift rightwards in order bring back the economy to its long-run equilibrium. O Price will increase, short-run aggregate supply will shift rightwards in order to bring back the economy to its long-run equilibrium.