Question

Assume that an economy is initially operating at the natural rate of output (Y ). A short-run

aggregate supply equation is given by Y t = Y + α ( P t − P te ) ,

where Y is output, P is the price level, P e is the expected price level, and α > 0

- (a) What is the slope of the aggregate supply curve?
- (b) According to the sticky-price model, the value of α depends on the fraction of firms with sticky prices. Other things being equal, if a greater proportion of firms follows the sticky-price rule, what happens to the slope of the AS curve?
- (c) Use the model of aggregate demand and aggregate supply to illustrate graphically the short-run and long-run effects on price and output of an unexpected expansionary monetary policy change

Answer #1

**Y t = Y + α ( P t − P te )**

**a)** The slope of Aggregate supply curve is
1/a.

**b)** The slope of AS curve ( 1/a ) increases as
the fraction of firms with flexible prices increases in the
sticky-price model and follow a direct relationship. Therefore, if
a greater proportion of firms follows the sticky-price rule, the AS
curve will be flatter which means the slope decreases..

**c) In the short run ,t**his positive AD shock
moves output above its natural rate and P above the level people
had expected. AD=C+I+G+NXA, D, equals, C, plus, I, plus, G, plus,
N, X equation, anything that increases C, I, G, or NX will shift AD
to the right. Due to the shift output has increased.

In the long run, Pe rises, LRAS shifts up, and output returns to its natural rate.

Velocity is 5
Money supply is 120
Current price level is 6
Full employment level of output is 100
Illustrate graphically the aggregate demand curve, the short run
aggregate supply curve, and the long run aggregate supply
curve.Illustrate graphically the aggregate demand curve, the short
run aggregate supply curve, and the long run aggregate supply curve
and what is the long run aggregate price level?

Assume that the long-run aggregate supply curve is vertical at Y
= 3,000 while the short-run aggregate supply curve is horizontal at
P = 1.0. Suppose that the country experiences an important crop
failure due to severe tornadoes. What will be the immediate impact
following the shock?
Select one:
a. the short-run aggregate supply curve shifts up, the price
level rises, and output falls.
b. the price level falls, output falls, and the short-run
aggregate supply curve shifts down.
c....

The Long-Run Aggregate Supply (LRAS) curve reflects
the natural level of output when there is no frictional
unemployment
the level of output that will prevail in the long run as
determined by the production function and factors of production
the level of output that will prevail in the long run as
determined by the quantity equation
the level of output in the long run when the money supply is
constant
The Short-Run Aggregate Supply (SRAS) curve reflects
the natural level...

Velocity is 5 Money supply is 120 Current price level is 6 Full
employment level of output is 100 1a. Illustrate graphically the
aggregate demand curve, the short run aggregate supply curve, and
the long run aggregate supply curve. 1b. What is the long run
aggregate price Level?

The economy is currently in a recession with high unemployment
and low output.
The Federal Reserve could conduct expansionary monetary policy
to restore the economy to its natural rate of output.
Draw and upload a graph of the Aggregate Demand and Aggregate
Supply model to illustrate the impact of the expansionary monetary
policy in returning the economy to the natural level of
output.
Be sure to carefully label all components of your graph.

The economy is currently in a recession with high unemployment
and low output.
The Federal Reserve could conduct expansionary monetary policy
to restore the economy to its natural rate of output. Draw and
upload a graph of the Aggregate Demand and Aggregate Supply model
to illustrate the impact of the expansionary monetary policy in
returning the economy to the natural level of output. Be sure to
carefully label all components of your graph.

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...

Assume the economy is initially operating at the natural level
of output. Which of the following events will initially cause a
shift of the aggregate supply (AS) curve?
a) an increase in the money supply
b) an increase in government spending
c) an increase in consumer confidence
d) all of the above
e) none of the above

Assume the following model of the closed economy in
the short run, with the price level (P) fixed at 1.0
C= 0.5 (Y -T)
T = 1,000
I = 1,500- 250r
G = 1,500
Md/P = 0.5Y - 500r
Ms = 1,000
a) Derive the numerical aggregate demand (AD) curve
for this economy, expressing Y as a function of P
b) You are the chief economic advisor in this
hypothetical economy. Do you believe that fiscal policy is more
potent...

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...

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