Question

Use the AS/AD model to predict how each of the following shocks would likely affect real aggregate income (Y), the overall level of real interest rates (r), and the price of goods and services (P) in the long run, all else equal. In each case, be sure to make a long run prediction (up, down, or no change) for all three variables, and illustrate your predictions with an IS/LM diagram and a supply/demand diagram for the goods market.

a.Government purchases decline (G down)

b. The nominal money supply increases (MS up)

c. Autonomous consumption increases (c0 up)

d. Total factor productivity increases (A up)

Answer #1

14. According to the Keynesian Cross model of income, how would
each of the following shocks affect a nation’s real aggregate
income (Y) in the short run, all else equal? For each shock, be
sure to clearly state a predicted direction of change for income,
illustrate your prediction with a Keynesian Cross Diagram, and
explain your predictions intuitively in words.a.Government
purchases decline b. Congress cuts household income taxes c.
Autonomous consumption increases d.Total factor productivity
increases

8. Use the classical model of a closed economy to predict how
each of the following shocks should affect a nation’s real
aggregate income (Y), national saving (S), investment (I), and
interest rate (r). Be sure in each case to clearly state your
predicted direction of change (up, down, or no change) for all four
variables and illustrate your predictions for S, I and r with a
supply/demand diagram for the loanable funds market.
The supply of capital (KS) increases
...

3. Use the classical model of a closed economy and the quantity
theory of money to predict how each of the following shocks would
affect real aggregate income (Y), the real interest rate (r), and
the price of goods and services (P) in a closed economy in the long
run, all else equal. For each shock, be sure to clearly state a
prediction for all three variables (up, down, or no change) and
illustrate your predictions with supply/demand diagrams for...

You are given the following equations for the Aggregate Demand
(AD) and short-run Aggregate Supply (SAS), AD Y = 2 Ap + 4 (Ms / P)
SAS Y = 750 + 250 P Y N = 1250 Natural Real GDP Ap = 250 Autonomous
Spending Ms = 125 Nominal Money Supply
1- Find the equilibrium Price level and Real GDP in the short
run.
2- Determine the recessionary or inflationary gap if exist and
by how much at short run...

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....

According to classical macroeconomic theory, changes in the
money supply affect
nominal variables and real variables.
nominal variables, but not real variables.
real variables, but not nominal variables.
neither nominal nor real variables.
The sticky-wage theory of the short-run aggregate supply curve
says that when the price level rises more than expected,
production is more profitable and employment rises.
production is more profitable and employment falls.
production is less profitable and employment rises.
production is less profitable and employment falls....

Both problems deal with Aggregate demand and Aggregate
Supply
Question1)Explain whether the following government policies
affect the aggregate demand curve or the short-run aggregate supply
curve and how.
1. The government reduces the minimum nominal wage.
2.The government increases Temporary Assistance to Needy
Families (TANF) payments, government transfers to families with
dependent children.
3.To reduce the budget deficit, the government announces that
households will pay much higher taxes beginning next year.
4.The government reduces military spending.
Question 2) In Wageland,...

In the long run, an increase in the aggregate price level:
Multiple Choice
increases real output.
increases spending.
decreases real output.
doesn't change real output.
Inflation is an overall:
Multiple Choice
decline in prices in the economy, excluding those with
historically volatile price changes.
decline in prices in the economy.
rise in prices in the economy, excluding those with historically
volatile price changes.
rise in prices in the economy.
The aggregate price level is:
Multiple Choice
a measure of the...

1. In the short-run IS-LM model with income taxation, taxes are
given by ?=? +??. Suppose that MPC = 0.75 and the marginal tax rate
?=0.2. Then, when ? decreases by 1000, then for any given interest
rate, the IS curve shifts:
Select one:
a. to the left by 1000.
b. to the right by 3000.
c. to the right by 3750
d. to the right by 1875.
2.
Suppose that the adult population in an economy is 28 million,...

THIS IS THE GENERAL EQUILIBRIUM PROBLEM THAT I PROMISED. YOU
FIRST SOLVE FOR THE INITIAL EQUILIBRIUM AS POINT A. WE CONSIDER TWO
DIFFERENT AND SEPARATE SHOCKS (I CALL THEM SCENARIOS). THE FIRST
SHOCK IS TO THE IS CURVE, THE SECOND SHOCK IS A ‘LM’ SHOCK. AGAIN,
WE CONSIDER THESE SHOCKS SEPARATELY SO THAT AFTER YOU COMPLETE
SCENARIO 1 (THE IS SHOCK), WE GO BACK TO THE ORIGINAL CONDITIONS
AND CONSIDER THE SECOND SCENARIO WHICH IS THE ‘LM’ SHOCK.
Consider the...

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