Question: Could you please help me answer that question? thanks QUESTION B2 The figure below depicts aggregate demand and aggregate supply in the nation of Pacifica
Could you please help me answer that question? thanks



QUESTION B2 The figure below depicts aggregate demand and aggregate supply in the nation of Pacifica in 2019. Long Run AS Short-fun AS AD At the beginning of 2020, a wave of business optimism led producers to sharply increase their planned investment expenditure. a. What effect, if any, will this increased investment expenditure have in the short-run on the Aggregate Demand curve? What effect, if any, will it have on the Short-Run Aggregate Supply curve? b. After the increased investment expenditure, will short-run equilibrium real GDP be above or below potential GDP? How do you know? The president of Pacifica is concerned about the effect of this new investment expenditure on the economy, and she wishes to use monetary policy to move equilibrium GDP back toward potential GDP. (For the remainder of the question, assume that the Pacifica Central Bank is Pacifica's version of the United States Federal Reserve, that Pacifica's banking and financial systems work exactly like the United States* banking and financial systems, and that Pacifica's currency is called the Pacifica dollar (PS).) c. Which one of the following policies would help the president achieve her aim? i. Direct the Pacifica Central Bank to purchase P$1 million of Pacifica Treasury Bills ii. Direct the Pacifica Central Bank to sell P$1 million of Pacifica Treasury Billsd. The figure below depicts 2 T-accounts: one for all of the commercial banks in Pacifica, and one for the Pacifica Central Bank. Show the impact of the open market operation you chose in part (c) by indicating how much each of the entries in the light-blue shaded cells will change as a result of the open market operation. Type your answer directly into the cell, next to the item name. (So, you will be adding a number and a sign. For example if you want to indicate that the item in the cell would increase by 50, type "+50" in the cell after its name. If you want to indicate it would decrease by 50, type "-50". If you want to indicate it won't change, type "O". If you do not enter any number into a cell it will be interpreted as a non-answer.) COMMERCIAL BANKS PACIFICA CENTRAL BANK Assets Liabilities Assets Liabilities Treasury Bill Treasury Bills Monetary Base Reserves The figure below represents the money market in Pacifica after the increase in investment expenditure but before the government undertakes the monetary policy you chose in part (c). I e. Explain why the Money Demand curve has a negative slope. (Note: you must say more than that money demand increases as the interest rate decreases, and vice versa. You must explain why this is the case.) f. What effect (if any) will the monetary policy you chose in part (c) have (in the short-run) on the Money Supply curve? The Money Demand curve? The equilibrium interest rate?g. What impact (ifany) will the monetary policy you chose in part (c) have (in the short-run) on Aggregate Expenditure? (If it does have an effect on Aggregate Expenditure, explain which component or components of Aggregate Expenditure will be most affected and why.) h. What impact (if any) will the monetary policy you chose in part (c) have on short-run equilibrium real GDP and the short-run equilibrium Aggregate Price Level? i. Explain how the money market will adjust to the monetary policy you chose in part (c) in the long-run. That is: what, if anything, will happen to money demand, money supply, and the equilibrium interest rate in the long run
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