Question

Suppose real output is initially at its full employment level. Using Aggregate Demand (AD)—Aggregate Supply (AS)...

Suppose real output is initially at its full employment level. Using Aggregate Demand (AD)—Aggregate Supply (AS) framework, discuss the short-run and long-run effects of a decrease in government expenditure on the price level, real output, nominal wage rate and real wage rate under the following three alternative assumptions: i) nominal wages are fully flexible, ii) nominal wages are relatively slow to adjust, and iii) nominal wages are completely rigid.

Thanks.

Homework Answers

Answer #1

1 marker and genuine yield fall since AD fall. Ostensible compensation falls in view of state and genuine pay remains a proportional since expenses have conjointly lessen As pay falls offer movements rightwards reestablishing introductory yield anyway the esteem keeps on being lower

2 worth and genuine yield level can fall. Ostensible pay can fall gradually so genuine pay ascends on the move as expenses have constrict. when it moderate yield can return back to a customary dimension anyway the esteem can at present be lower

3 yield and expenses can fall. Ostensible wages can remain affixed so genuine wages rise.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Now assume that for some reason Aggregate Demand shifts to the left (downwards) and suppose wages...
Now assume that for some reason Aggregate Demand shifts to the left (downwards) and suppose wages fully adjust. By using the AS-AD graph, show the effects of this shift on the equilibrium output and price level in the Short-Run and in the Long-run.
Indicate whether each of the following factors will affect aggregate demand (AD) or aggregate supply (AS)...
Indicate whether each of the following factors will affect aggregate demand (AD) or aggregate supply (AS) and whether the effect would be an increase or a decrease. Then indicate what will happen to the price level and the level of real GDP and what type of equilibrium will result assuming that the economy is initially in long-run equilibrium. a) A decrease in the nominal wage rate. It will affect Aggregate Supply and will result in an increase in total supply....
When an economy operates at its long-run potential output level, a. aggregate demand will exceed aggregate...
When an economy operates at its long-run potential output level, a. aggregate demand will exceed aggregate supply in the goods and services market. b. unemployment will decline to an abnormally low rate that cannot be sustained in the long run. c. the actual rate of unemployment will exceed the natural rate of unemployment. d. the natural and actual rates of unemployment will be equal. If an economy is operating in the range where its aggregate supply curve is vertical, a....
An increase in aggregate demand (AD) can cause a recession in the economy. an increase in...
An increase in aggregate demand (AD) can cause a recession in the economy. an increase in cyclical unemployment. an expansion in the economy. Flag this Question Question 22 pts Economic growth is shown in the AS-AD model as a leftward shift in the short run AS curve. rightward shift in the AD curve. rightward shift in the long run AS curve. Flag this Question Question 32 pts In the long run, the most important factor that shifts the aggregate supply...
Assume that the economy is initially in equilibrium at full employment. Suppose that the fed decreases...
Assume that the economy is initially in equilibrium at full employment. Suppose that the fed decreases money supply by 5 percent. Using an aggregate demand and supply graph ( discussed in chapter 22 ), explain exactly what happens and why to aggregate output (real GDP) and the inflation rate in the short run. (b) Using the same aggregate demand and supply graph, explain exactly what happens and why to aggregate output (real GDP) and the inflation rate rate in the...
-Assume that the economy is initially in equilibrium at full employment. Suppose that the Fed decreases...
-Assume that the economy is initially in equilibrium at full employment. Suppose that the Fed decreases money supply by 5 percent. (a) Using an aggregate demand and supply graph (discussed in Chapter 22), explain exactly what happens and why to aggregate output (real GDP) and the inflation rate in the short run. (b) Using the same aggregate demand and supply graph, explain exactly what happens and why to aggregate output (real GDP) and the inflation rate in the long run.
The government increases its expenditure in the current period. However, in- stead of financing this increase...
The government increases its expenditure in the current period. However, in- stead of financing this increase by raising taxes, it decides to finance it by printing money. What are the effects of this policy on aggregate output, con- sumption, investment, employment, the real wage, the real interest rate, the nominal wage and the price level?
A. Aggregate Demand, Aggregate Supply, and Equilibrium For a hypothetical economy, the aggregate-demand (AD), short-run aggregate...
A. Aggregate Demand, Aggregate Supply, and Equilibrium For a hypothetical economy, the aggregate-demand (AD), short-run aggregate supply (AS), and long-run aggregate-supply (ASLR) schedules are as follows. The schedules show the GDP price deflator (P) versus real GDP (Q), with Q measured in billions of constant dollars. P AD AS ASLR 80 30 22 30 90 28 24 30 100 26 26 30 110 24 28 30 120 22 30 30 130 20 32 30 A1. GRAPHS: Graph the AD, AS,...
Assume the economy is initially operating at the natural level of output, and suppose a budget...
Assume the economy is initially operating at the natural level of output, and suppose a budget is passed that calls for a tax cut This fiscal expansion will, in the short run, cause an increase in: A) The interest rate B) The nominal wage C) The output level D) All of the above
Suppose the Canadian government decides it wants to use fiscal policy to increase output and employment....
Suppose the Canadian government decides it wants to use fiscal policy to increase output and employment. With the aid of diagrams, carefully explain whether and how an increase in government spending would shift the Aggregate Demand curve in a small open economy. a) with flexible exchange rates b) with fixed exchange rates. Suppose Canada is a small open economy initially in Long Run equilibrium. Then the rest of the world reduces its demand for Canadian-produced goods. Using the AD/AS framework...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT