Question

Suppose that laws are passed banning labor unions and that resulting lower labor costs are passed along to consumers in the form of lower prices. Use the aggregate demand–aggregate supply model to illustrate graphically the impact in the short run and the long run of this favorable supply shock. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; v. the short-run equilibrium values; and vi. the long-run equilibrium values. State in words what happens to prices and output in the short run and the long run.

Answer #1

**Effects of a positive
supply shock :**

Lower labour costs means that input costs have fallen , so supply will rise . Short run aggregate supply curve shifts to the right . In short run , price level decreases and output increases as new short run aggregate supply curve is the rightward shift of the old one and cuts the aggregate demand curve at lower intersection .

As the economy starts to adjust in long run , the output potential has increased since firms can hire more labour now . So LRAS also shifts right .

Show graphically how a positive (favorable or good) supply shock
would impact the AS/AD curve. (Assume you start at a long-run
equilibrium and assumption that some, but not all prices are sticky
in the short-run) Be sure to label all axis and any shifts of any
curves

Use the IS-LM model to graphically illustrate the impact of a
housing crash on output and interest rate in an economy in the
short run. Be sure to label: i. the axes; ii. the curves; iii. the
initial equilibrium levels; iv. the direction the curves shift; and
v. the new short-run equilibrium. And Write down all changes from
the initial equilibrium (the changes in C, I, r, u and Y) to the
new short-run equilibrium.

Use the IS-LM model to graphically illustrate the impact of a
sudden decrease in demand for money (due to an increase in the use
of internet banking) on the output and interest rate in an economy
in the short run. Write down the impact on Y, C, U and
I.
Be sure to label: i. the axes; ii. the curves; iii. the initial
equilibrium levels; iv. the direction the curves shift; and v. the
new short-run equilibrium.

4. Suppose that the Fed conducted open market sales. Use the
IS-LM model to illustrate graphically the impact of the open market
sales on output and interest rates. Be sure to label: i. the axes;
ii. the curves; iii. the initial equilibrium values; iv. the
direction the curves shift; and v. the terminal equilibrium
values.

Which of the following will most likely increase long-run
aggregate supply? a. an increase in the rate of investment b. an
increase in resource prices c. an increase in the minimum wage d.
an increase in the expected inflation rate
Suppose the economy is initially in long-run equilibrium and
then it experiences a supply shock in the form of sharply higher
energy prices. Which of the following is true? a. The short-run
aggregate supply curve shifts leftward and the long-run...

3. a. Suppose Congress decides to reduce the budget deficit by
cutting government spending. a. Use the Keynesian-cross model to
illustrate graphically the impact of a reduction in government
purchases on the equilibrium level of income. Be sure to label: i.
the axes; ii. the curves; iii. the initial equilibrium values; iv.
the direction the curve shifts; and v. the terminal equilibrium
values. b. Explain in words what happens to equilibrium income as a
result of the cut in government...

Suppose the economy is currently in both short-run and long-run
equilibrium at the equilibrium point indicated on the graph as
"E1". Also suppose that short-run aggregate supply curve is in the
very short run where prices are fixed.
a. Using the infinite line tool , draw both the short run and
long run aggregate supply curves that must exist in order for E1 to
be the equilibrium. Label these "SRAS" and "LRAS",
respectively.
b. Using the 3-pt curve tool ,...

Suppose the economy is in long-run equilibrium, with real GDP at
$16 trillion and the unemployment rate at 5%. Now assume that the
central bank increases the money supply by 6%.
a. Illustrate the short-run effects on the macro-economy by
using the aggregate supply-aggregate demand model. Be sure to
indicate the direction of change in Real GDP, the Price Level, and
the Unemployment Rate. Label all curves and axis for full
credit.

An economy’s AD (Aggregate Demand) function is Y = 1000 – 2P
and AS (Aggregate Supply) function is P = 20 + 0.1Y. Show these two
lines in a graph. Label graphs. Find the equilibrium price level
(P) and GDP (Y) and show them on the graph.
Use the AS and AD curves to illustrate your points and discuss
the effects of the following events on the price level and on the
equilibrium GDP (Y) in the short run:
a)...

There are two inputs labor, L, and capital, K. Their cost
minimizing levels are given by K(y) = 2y and L(y) =y^2.L and K are
respectively priced w=1/2 and r= 3
.a) Find the firm’s cost curve.
b) What is the firm’s exit price
c) Graphically show how the long run supply curve is derived
from cost curves (make sure to label the axes, the curves, the
intercepts, and the slope).
d) A tp= $12, what is the profit-maximizing level...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 7 minutes ago

asked 41 minutes ago

asked 46 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 3 hours ago