Refer to Figure 13-3. Suppose the economy is at long-run equilibrium point C. Suppose investors become...

 

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Refer to Figure 13-3. Suppose the economy is at long-run equilibrium point C. Suppose investors become pessimistic about their future of investment. Our analysis will be based on this pessimistic behavior of the investors. Use your work sheet to answer questions given below. 1. Therefore the economy moves away from the initial equilibrium point C to............ 2. Which curve represents this pessimistic behavior of investors? Due to this change, what happens to the level of unemployment and price level in the economy? 3. Suppose the government/Fed decides to use monetary/fiscal policies to help the economy to bounce back to the potential level of GDP. Describe one fiscal policy the government could use and one monetary policy the Fed could use to bring the economy back to the equilibrium. The new equilibrium point of the economy (as a result of the fiscal or monetary policy use) will be point Answer: Figure 13-3 Price level Potential GDP GDP1 SRAS 1 SRAS 2 AD2 AD1 Real GDP Refer to Figure 13-3. Suppose the economy is at long-run equilibrium point C. Suppose investors become pessimistic about their future of investment. Our analysis will be based on this pessimistic behavior of the investors. Use your work sheet to answer questions given below. 1. Therefore the economy moves away from the initial equilibrium point C to............ 2. Which curve represents this pessimistic behavior of investors? Due to this change, what happens to the level of unemployment and price level in the economy? 3. Suppose the government/Fed decides to use monetary/fiscal policies to help the economy to bounce back to the potential level of GDP. Describe one fiscal policy the government could use and one monetary policy the Fed could use to bring the economy back to the equilibrium. The new equilibrium point of the economy (as a result of the fiscal or monetary policy use) will be point Answer: Figure 13-3 Price level Potential GDP GDP1 SRAS 1 SRAS 2 AD2 AD1 Real GDP

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1 Therefore the economy moves away from the initial equilibrium point to point D 2 The investment cu... View the full answer