Suppose that the long-run real interest rate is 1% and the Fed has an inflation target...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Suppose that the long-run real interest rate is 1% and the Fed has an inflation target of 2%. (a) Suppose that the economy starts out in period 0 in long-run equilibrium. Draw the AS-AD diagram corresponding to the equilibrium in period 0, labeling the curves AS and AD. Indicate on your graph the numerical values for the variables on the horizontal and vertical axis in the initial equilibrium. What is the initial value for the nominal interest rate. (b) Assume that in period 1 the Japanese economy enters a recession, and the demand for US exports decreases. Draw the AS and AD curve for period 1, labeling these as AS, and AD₁. Assuming adaptive expectations, does the nominal interest rate go up, down or stay the same between period 0 and pe- riod 1? How do inflation, short-run output, and the real interest rate respond? What happens to consumption and investment? What about exports? (c) Assume that Japanese demand for U.S. exports remains low in period 2. In the same diagram, show how aggregate demand and aggregate supply shift in period 2. What happens to short-run output and inflation, relative to period 1? What happens to consumption and investment compared to period 1? What happens to exports compared to period 1? (d) Suppose that the Japanese demand for U.S. exports remains low for an ex- tended period of time after period 2. Clearly mark in you diagram the level of inflation and short-run output where the economy settles, assuming that Japanese demand for U.S. goods does not recover. Suppose that the long-run real interest rate is 1% and the Fed has an inflation target of 2%. (a) Suppose that the economy starts out in period 0 in long-run equilibrium. Draw the AS-AD diagram corresponding to the equilibrium in period 0, labeling the curves AS and AD. Indicate on your graph the numerical values for the variables on the horizontal and vertical axis in the initial equilibrium. What is the initial value for the nominal interest rate. (b) Assume that in period 1 the Japanese economy enters a recession, and the demand for US exports decreases. Draw the AS and AD curve for period 1, labeling these as AS, and AD₁. Assuming adaptive expectations, does the nominal interest rate go up, down or stay the same between period 0 and pe- riod 1? How do inflation, short-run output, and the real interest rate respond? What happens to consumption and investment? What about exports? (c) Assume that Japanese demand for U.S. exports remains low in period 2. In the same diagram, show how aggregate demand and aggregate supply shift in period 2. What happens to short-run output and inflation, relative to period 1? What happens to consumption and investment compared to period 1? What happens to exports compared to period 1? (d) Suppose that the Japanese demand for U.S. exports remains low for an ex- tended period of time after period 2. Clearly mark in you diagram the level of inflation and short-run output where the economy settles, assuming that Japanese demand for U.S. goods does not recover.
Expert Answer:
Answer rating: 100% (QA)
The detailed answer for the above question is provided below a The ASAD diagram corresponding to the ... View the full answer
Related Book For
Posted Date:
Students also viewed these economics questions
-
What is the probability that the selected person responded or is in the 18-21 age bracket? Age 18-21 22-29 255 20 30-39 40-49 136 16 50-5960 and over Responded 73 245 138 202 Refused 27 49
-
What is the probability that there are exactly two girls in a family with four children? Assume that girls and boys are equally likely.
-
What is the probability that a registered voter in Virginia chosen at random voted in the 2012 general election? Use the diagram. About 3.896,846 About 1,531,987 registered voters registered voters...
-
In the game of roulette, a gambler who wins the bet receives $36 for every dollar she or he bet. A gambler who does not win receives nothing. If the gambler bets $1, what is the expected value of the...
-
The following defined benefit pension data of Datek Corp. apply to the year 2011: Accrued benefit obligation, funding basis, 1/1/11 (before amendment) ...$280,000 Plan assets, 1/1/11...
-
BP plc shares are currently selling for 4.29 per share. A put option with an exercise price of 4.40 sells for 0.25 and expires in 3 months. If the risk-free rate of interest is 2.6 per cent per year,...
-
During the year to 30 September 2020, Kammer plc made a new offer of shares. The details of the offer were as follows: 1 100,000 ordinary shares of 1 each were issued payable in instalments as...
-
Tanek Corp.s sales slumped badly in 2017. For the first time in its history, it operated at a loss. The companys income statement showed the following results from selling 500,000 units of product:...
-
1.What is: a. FIFO b.LIFO c.Weighted Average d. Specific Item IFRS will be eliminating LIFO, what method best reflects the actual flow of inventory? a. In times if rising price/cost, which method...
-
Consider an economy described by the following equations: Consumption function: Disposable Income: Taxes Transfers: Investment: Government spending: Net Exports: C=200+0.75"DI DI=Y-T T=1200 1=900 GE...
-
Project Title: Graphs to Describe Data A group of students were asked to tell a researcher the number of days they exercised in the last month. The data can be found below: 0 6 7 10 3 7 6 13 3 10 3 3...
-
Oriole Farm Supply Company manufactures and sells a pesticide called Snare. The following data are available for preparing budgets for Snare for the first 2 quarters of 2025. 1. Sales: quarter...
-
Costs Selling: Advertising Sales salaries and commissions Delivery of pianos to customer's Utilities Depreciation of sales facilities Administrative: Executive salaries Insurance Clerical...
-
Briefly explain the Coase Theorem. Suppose that the conditions for the Coase Theorem hold; that is, property rights for a resource are clearly established and bargaining costs are low. If so, what...
-
The Rolling Department of Jabari Steel Company had 3,934 tons in beginning work in process inventory (20% complete) on October 1. During October, 56,200 tons were completed. The ending work in...
-
Tropical View had a December 31 ending balance in its prepaid rent account of $1,800. During the year the company made payments for prepaid rent of $400 and recorded rent expense for the year of...
-
plzanswer all photos questions plz and thank u. omplete this question by entering your answers in the tabs below. epare general foumal entries to record these transactions using the following titles:...
-
An Atomic Energy Commission nuclear facility was established in Hanford, Washington, in 1943. Over the years, a significant amount of strontium 90 and cesium 137 leaked into the Columbia River. In a...
-
You have been given the task of estimating the percentage of Southwest flights that arrive on time, which is no later than 15 minutes after the scheduled arrival time. How many flights must you...
-
When Steve Jobs was Chicf Executive Officer (CEO) of Apple, he earned an annual salary of $1. The CEOs of the 50 largest U. S. companies had a mean salary of $1,449,779 and a standard deviation of...
-
At 6327 ft (or 6.327 thousand feet), the author recorded the temperature. Find the best predicted temperature at that altitude. How does the result compare to the actual recorded value of 48F? Find...
-
\(\frac{b^{6}}{b^{19}}\) Simplify the expression.
-
\(\frac{c^{9}}{c^{4}}\) Simplify the expression.
-
\(\frac{15^{14}}{15^{11}}\) Simplify the expression.
Study smarter with the SolutionInn App