In the graph, demonstrate the short-run effect of an increase in the growth rate of the money supply, assuming all elseremains equal.What happens in the long run?LRASO As expectations adjust to the increase, all curves shiftback to their original locations.SRASThe SRAS curve shifts to the left, and the inflation rateincreases, with no change in the growth rate.The AD curve shifts to the right, and both the realgrowth rate and inflation rate increase.The LRAS curve shifts to the right, and the real growthrate increases, with no change in the inflation rate.ADReal GDP growth rateInflation rate (T)

Answer - Need to find - What happens in long run Given in the question - In the graph, demonstrate…

Answered: In the graph, demonstrate the short-run…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The slope of the ADTT curve is determined by: O a. The monetary policy of targets and instruments of the central bank O b. All of the above O c. The expenditure multiplier O d. The changes in and aggregate expenditure when interest rates change
Suppose the current administration decides to decreasegovernment expenditures as a means of cutting theexisting government budget deficit.a. Using a graph of aggregate demand and supply, showthe effects of such a decision on the economy in theshort run. Describe the effects on inflation and output.b. What will be the effect on the real interest rate, theinflation rate, and the output level if the FederalReserve decides to stabilize the inflation rate?
Suppose that in Macroland the consumption and the investment have a negative relationship withthe real interest rate and positive relationship with Y. The Central Bank of the country targets acertain nominal interest rate and lets the money supply adjust in order to reach that interest rate.a. Draw a graph of the IS-LM model in this situation.b. Suppose that the Central Bank announces an increase of the interest rate in the future.Represent graphically the initial position of IS-LM curves. Then, show the IS-LM curves of thefuture, after the announced increase in the interest rate is implemented. (Assume that the ISis constant.).c. Suppose that agents today take into consideration the resulting income of the future whendeciding the amount of consumption and investment. Show what happens to the IS-LMcurves today after the announcement of the CB (tip: the CB is NOT increasing the nominalinterest rate today).d. The government decides to step in and avoid any deviation of Y from the initial…
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Suppose two countries have identical aggregate demandcurves and potential levels of output, and g is the samein both countries. Assume that in 2019, both countriesare hit with the same negative supply shock. Given thetable of values below for inflation in each country, whatcan you say, if anything, about the credibility of eachcountry’s central bank? Explain your answer.Country A Country B2018 3.0% 3.0%2019 3.8% 5.5%2020 3.5% 5.0%2021 3.2% 4.3%2022 3.0% 3.8%
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On June 5, 2003, the European Central Bank acted to decreasethe short-term interest rate in Europe by half a percentagepoint, to 2 percent. The bank’s president at the time, WillemDuisenberg, suggested that, in the future, the bank could reducerates further. The rate cut was made because European coun-tries were growing very slowly or were in recession. What effectdid the bank hope the action would have on the economy? Bespecific. What was the hoped-for result on C, I, and Y?

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