question
Assume that the United States economy is currently in equilibrium at the full-employment level of real gross domestic product.
Draw a correctly labeled graph of aggregate demand and aggregate supply showing each of the following in the United States.
(i) Output level
(ii) Price level
Draw a correctly labeled graph of aggregate demand and aggregate supply showing each of the following in the United States.
(i) Output level
(ii) Price level
answer
i. US exports will fall which will show a decrease in AD which decreases the price level and output.
question
Japan is a major importer of United States products. Assume that the Japanese economy goes into a recession.
(i) Explain the impact of the Japanese recession on the United States equilibrium output and price levels.
(ii) Show these effects on your graph in part (a).
(i) Explain the impact of the Japanese recession on the United States equilibrium output and price levels.
(ii) Show these effects on your graph in part (a).
answer
Purchasing of government bonds
question
Assume that the Federal Reserve takes action to curb the effects of the Japanese recession on the United States economy.
What open-market operation would the Federal Reserve undertake?
What open-market operation would the Federal Reserve undertake?
answer
The decrease in interest rate leads to an increase in business investment demand, which increases
aggregate demand. The increase in aggregate demand increases equilibrium price and output levels.
aggregate demand. The increase in aggregate demand increases equilibrium price and output levels.
question
Use a correctly labeled graph of the money market to show how the Federal Reserve policy action will affect the nominal interest rate.
answer
The real interest rate is the nominal rate adjusted for inflation.
question
Explain how the change in the nominal interest rate in part (c) (ii) will affect aggregate demand, price level, and real output in the United States.
answer
The real interest rate falls because the nominal interest rate falls and the price level increases.
question
Define the real interest rate.
answer
The demand-for-funds curve shifts to the right resulting in the real interest rate increasing.
question
Indicate the effect of the open-market operation you identified in part (c) (i) on the real interest rate in the United States.
answer
The investment in plant and equipment will decrease because of the higher real interest rate.
question
The graph above shows the loanable funds market for a country.
Assume that now the country's government increases deficit spending. Explain how the increase in deficit spending will affect the real interest rate.
Assume that now the country's government increases deficit spending. Explain how the increase in deficit spending will affect the real interest rate.
answer
The decrease in investment in plant and equipment will reduce capital stock resulting in long-term economic growth decreasing.
question
Indicate how the real interest rate change you identified in part (a) will affect investment in plant and equipment.
answer
i. The real interest-rate increase from part (a) will increase the demand for the country's financial assets which will increase the demand for the country's currency.
ii. Increase in the demand for the currency will result in the currency appreciating in value.
ii. Increase in the demand for the currency will result in the currency appreciating in value.
question
Explain how the real interest rate change you identified in part (a) will affect long-term economic growth.
answer
i. Increase in business taxes.
ii. See graph
ii. See graph
question
Explain how the real interest rate change you identified in part (a) will affect each of the following in the foreign exchange market.
(i) The demand for the country's currency
(ii) The value of the country's currency
(i) The demand for the country's currency
(ii) The value of the country's currency
answer
There is no trade-off between inflation and unemployment in the long run.
question
Assume that the table below shows the unemployment and inflation data in Country X as a result of a shift in aggregate demand.
Draw a correctly labeled graph of a short-run Phillips curve for Country X, showing the actual unemployment and inflation rates for both years. Label the Phillips curve as SRPC.
Draw a correctly labeled graph of a short-run Phillips curve for Country X, showing the actual unemployment and inflation rates for both years. Label the Phillips curve as SRPC.
answer
undefined
question
Now assume that the short-run aggregate supply curve has shifted to the left.
(i) Identify one factor that could cause the aggregate supply curve to shift to the left.
(ii) On the graph, show how this shift would affect the short-run Phillips curve.
(i) Identify one factor that could cause the aggregate supply curve to shift to the left.
(ii) On the graph, show how this shift would affect the short-run Phillips curve.
answer
undefined
question
Assume that the natural rate of unemployment in Country X is 5 percent. Draw a correctly labeled graph of the long-run Phillips curve and label it as LRPC.
answer
undefined
question
What is the relationship between the unemployment rate and the inflation rate in the long run?
answer
undefined
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
