Question: Answer the following questions about the AS-AD model. The aggregate demand and aggregate supply diagram has output on the horizontal axis and inflation on the

Answer the following questions about the AS-AD model.

  1. The aggregate demand and aggregate supply diagram has output on the horizontal axis and inflation on the vertical axis. Explain the derivation of the aggregate demand schedule from the IS schedule and monetary policy. Why is it downward sloping? Explain your answer mathematically.
  2. What causes movements along the aggregate demand schedule? What happens to the aggregate demand schedule if government expenditure increases and tax revenue does not change? What happens to the aggregate demand schedule if the target inflation rate is increased?
  3. What is the shape of the aggregate supply curve if prices and wages are completely flexible. What determines potential output?
  4. Suppose that economy starts at a point where aggregate demand and short and long aggregate supply are all equal. The central bank then tightens monetary policy in order to reduce the rate of inflation. Use a diagram to discuss what happens to aggregate demand and supply in the short and long run.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!

Q:

Pumped Up Company purchased equipment from Switzerland for 140,000 francs on December 16, 20X7, with payment due on February 14, 20X8. On December 16, 20X7, Pumped Up also acquired a 60-day forward...

Q:

Explain the following. 1. In microeconomics the term utility references the: i. relative scarcity of a good or service ii. usefulness of a good or service iii. satisfaction derived from consumption...

Q:

Part A. Production Problem 1. Consider the Cobb-Douglas production function f(x,y) = 12x0.4y0.8. (A) Find the intensities (? and 1 ? ?) of the two factors of production. Does this firm have...

Q:

1. Key facts about economic fluctuations The graph included below approximates United States business cycles between quarter one of 1953 and quarter three of 1957. The shaded region denotes periods...

Q:

Question one. 9. (5 pts.) Show on the axes below how the presence of trade unions can impact the structural rate of unemployment in a country: Wage (3 pts.) Considering the process of fractional...

Q:

1 . Explaining short-run economic fluctuations Most economists believe that real economic variables and nominal economic variables behave independently of each other in the long run. For example, an...

Q:

00provide reference's 5. Consider a supply and demand diagram for money like the one we studied in class, with the quantity of money on the horizontal (x) axis and the "goods price of money" on the...

Q:

00provide reference's 5. Consider a supply and demand diagram for money like the one we studied in class, with the quantity of money on the horizontal (x) axis and the "goods price of money" on the...

Q:

Task O4. The unemployment rate in April 2020 was 14.7%, while in March 2020 was 4.4%. What is your best estimate for the real output growth rate in this period? Assume the US real output was growing...

Q:

Step by step5 explanations. Most economists believe that real economic variables and nominal economic variables behave independently of each other in the long run. For example, an Increase In the...

Q:

Part one. 1. (4 pts.) Briefly define each of the components of Y = C + I + G + NX and give an example for each category of expenditure: (3 pts.) Do economists prefer Nominal GDP or Real GDP as the...

Q:

Western World has the following selected data ($ In milllons): 1526 2021 Balance mheet data Total assats Total liabilitias $2,600 1,700 900 $2,250 1,150 1,100 Total stockholders' equity Income...

Q:

In April 2013, Jack Lang opened a new cleaning service in Victoria. Please assist him by journalizing the following business transactions: The chart of accounts for Jacks Cleaning Service includes:...

Q:

miaterm i f the l i m i t i s infinite, determine i f its o r - . lim x 2 e x + 1 3 e x + 4

Q:

Consider the following code segment: int numFeet, numInches; //number of feet // number of inches int totalInches -52: //total number of inches Write the statements to convert the total number of...

Q:

Identify which question you are answering. Round all decimals. On January 1, Year 4 A purchased 80% of the outstanding common shares of B. The acquisition differential of $20,000 was allocated as...

Q:

Give me a conducted feasibility study for a mechanical engineering consultancy firm?

Q:

The level curve of the function h(x, y) = 16 a2 - ? that passes through the point (0, 2, h(0, 2)) is given by the set: %3D In your complete answer, sketch the graph of the selected level curve. OC =...

Q:

Set animals _ set 1 contains 'urchin'. Set animals _ set 2 contains three strings read from input. Perform the following tasks: Update animals _ set 1 with animals _ set 2 . Read the next string from...

Q:

Purpose: What do we seek to achieve with our behaviour?

Q:

An action plan is prepared.

Q:

2. In this chapter, the reader should reflect on the following concepts: personal change competence, personal achievements, personal benchmarking, personal motivation strategy, personal mastery...