Question

a) Draw the U.S. economy in long run​ equilibrium--just draw it on your paper. ​b) Suppose...

a) Draw the U.S. economy in long run​ equilibrium--just draw it on your paper.

​b) Suppose that firms expect profits to decrease. Which curve will shift as a result of the shock and in which​ direction?

A.

SAS will shift Left

B.

AD will shift Right

C.

AD will shift Left

D.

SAS will shift Right

​c) Illustrate the shift on your​ graph--again, just draw it on your paper.

​d) Explain what happens to​ Y, P, and the unemployment rate in the shortrun.

Y will

A.

​↓

B.

remain the same

C.

​↑

P will

A.

remain the same

B.

​↓

C.

​↑

ue rate will

A.

​↓

B.

remain the same

C.

​↑

​e) State whether the economy is at a​ full-employment equilibrium, below​ full-employment equilibrium, or above​ full-employment equilibrium after the shock.

A.

above full employment             

B.

below full employment

C.

at full employment

​f) State whether the unemployment rate is above or below the NRU after the shock.

A.

above the NRU

B.

at the NRU

C.

below the NRU

​g) State whether the economy has an expansionary gap or a contractionary gap after the shock.

A.

contractionary gap

B.

expansionary gap

C.

no gap

​h) If​ applicable, state whether the economy experiences​ cost-push inflation or​ demand-pull inflation.

A.

no added inflation

B.

​demand-pull inflation

C.

​cost-push inflation

​i) If the Fed uses monetary policy to correct the economy back to full​ employment, which curve will shift and in which​ direction? Illustrate the shift on your graph above.

A.

AD will shift Left

B.

SAS will shift Left

C.

SAS will shift Right

D.

AD will shift Right

​j) List 3 monetary policy tools the Fed could use to correct the economy and in which direction they would need to change

Choose from the​ following:

A. Increase the IOR rate

Yes

No

B. Increase the discount rate

Yes

No

C. Increase government spending

Yes

No

D. Increase tax rates

Yes

No

E. Increase the ON RRP rate

Yes

No

F. Decrease the discount rate

Yes

No

G. Decrease government spending

Yes

No

H. Decrease the IOR rate

Yes

No

I. Decrease tax rates

Yes

No

J. Decrease the ON RRP rate

Yes

No

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