Question

It is sometimes argued that economic growth that is "too rapid" will be associated with inflation....

  1. It is sometimes argued that economic growth that is "too rapid" will be associated with inflation. Use the Aggregate Demand and Aggregate Supply model to show and explain how this statement might be true. When this claim is made, what type of shock is implicitly assumed to be hitting the economy?

    [NB: In your explanation include what happens to output, consumption, unemployment rate, investment and the price level]

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Starting form the point A. The output is at the potential level, an increase in the demand will increase the price level to P and the output to Y. this increase will create an inflationary pressure in the market. Due to rising demand and inflation the price will rise and unemployment will decrease. at this level the real wage is low.

The economy will be facing a positive demand shock and that will shift the AD curve to the right. this increase in the output was not possible with out an increase in the inflation after reaching the potential output level.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
List at least three sources of positive economic growth in an economy and discuss how these...
List at least three sources of positive economic growth in an economy and discuss how these sources affect aggregate supply withing the AD/AS model. In the discussion, pay particular attention to 1. national output 2. unemployment 3. inflation. Your discussion must be illustrated by the AD/AS model.
write an essay discussing the economic impacts of the shock on turkey's economy. in your article,...
write an essay discussing the economic impacts of the shock on turkey's economy. in your article, discuss the effects of this economic shock on Turkish economy using the concepts of GDP, GROWTH, INFLATION, UNEMPLOYMENT, MONEY MARKETS, INTEREST RATES, AGGREGATE SUPPLY AND AGGREGATE DEMAND. use a narrative based on the economic theories we saw in the course. connect your ideas to each other with scientific background . give policy suggestions to shorten the effect of this shock on Turkish economy. while...
When the economy is producing at an output level below the potential output, the unemployment rate...
When the economy is producing at an output level below the potential output, the unemployment rate is above the natural rate of unemployment. the short-run aggregate supply curve will slowly shift to the left when wages start to adjust. the intersection of the short-run aggregate supply curve and the aggregate demand curve is to the right of the long-run aggregate supply curve. the economy might be at the long-run equilibrium. Which of the following is not a determinant of the...
One explanation for China’s rapid economic growth during the past several decades is its expansion of...
One explanation for China’s rapid economic growth during the past several decades is its expansion of policies that encourage technology transfer. By this, we mean policies such as opening up to international trade and attracting multinational corporations through various incentives that encourage the use and adoption in China of new ideas and new technologies. This question asks you to use the Solow model to study this scenario. Suppose China begins in steady state. To keep the problem simple, let’s assume...
Each scenario should have a graph and a written response. A stock market collapse that hurts...
Each scenario should have a graph and a written response. A stock market collapse that hurts consumer and business confidence; as a result, the economy falls into the flat aggregate supply zone. Extremely rapid growth of exports. Currently, the economy is producing at full employment. Rising inflation concern. Currently, the economy is producing at the intermediate zone of the aggregate supply curve. A rise in oil prices and inputs costs. Make your own assumption of the original equilibrium. Sketch AD-AS...
Assume that Australia’s macroeconomic equilibrium starts at full employment. There is a slower economic growth in...
Assume that Australia’s macroeconomic equilibrium starts at full employment. There is a slower economic growth in a number of Australia’s trading partners including China and Indonesia.  As a result, the demand for Australian beef from these countries decreases. Using AD- AS model, explain carefully the immediate and long-term effects of this event towards the Australian economy. Draw the appropriate Aggregate Demand-Aggregate Supply diagram to support your explanation.
The main advantage of using the interest rate, rather than the money supply, as the policy...
The main advantage of using the interest rate, rather than the money supply, as the policy instrument in the dynamic AD–AS model is that it is more realistic. Today, most central banks, including the Federal Reserve, set a short-term target for the nominal interest rate. Keep in mind, though, that hitting that target requires adjustments in the money supply. For this model, we do not need to specify the equilibrium condition for the money market, but we should remember that...
The main advantage of using the interest rate, rather than the money supply, as the policy...
The main advantage of using the interest rate, rather than the money supply, as the policy instrument in the dynamic AD–AS model is that it is more realistic. Today, most central banks, including the Federal Reserve, set a short-term target for the nominal interest rate. Keep in mind, though, that hitting that target requires adjustments in the money supply. For this model, we do not need to specify the equilibrium condition for the money market, but we should remember that...
ECO - 252 -- Macroeconomics 7. True/False statements. Simply state if the statement is true or...
ECO - 252 -- Macroeconomics 7. True/False statements. Simply state if the statement is true or false. No explanation required. a. In the AD-AS Model, the wealth effect refers to a decrease in the interest rate that in turn increases consumption and investment. b. Ceteris Paribus, a decrease in the price level causes the interest rate to decrease, which leads to a depreciation of the dollar in the foreign-currency exchange. c. The aggregate demand curve slopes downward because it is...
1.High interest rates might………….purchasing a house or a car but at the same time high interest...
1.High interest rates might………….purchasing a house or a car but at the same time high interest rate might ……………….saving. A)  discourage; encourage B)  discourage; discourage C) encourage; encourage D)  encourage; discourage 2.An increase in interest rates might ………..saving because more can be earned in interest income. A) encourage B) discourage C) disallow D) invalidate 3.   Everything else held constant, an increase in interest rates on student loans ……………….. A)  increases the cost of a college education. B)  reduces the cost of a college education. C)...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT