The U.S. economy has started to face a slowdown this year (2023). Among other factors, investment...

 

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The U.S. economy has started to face a slowdown this year (2023). Among other factors, investment and consumption expenditures have decreased with less credit available (Hint: negative demand shock) a. Draw the aggregate supply in the short and long run, and the aggregate demand. Assuming that the economy was initially in equilibrium, show the effect of this negative demand shock. In the same diagram, show the path the economy takes in the short run. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values. Be sure to show: i. the direction the curves shift, ii. the short-run equilibrium values. b. State in words what happens to sales, employment, output, and prices in the short run. c. The Federal Reserve has been cutting interest rates dramatically in order to minimize the severity of the recession. What is the open market operation that the Fed is pursuing to achieve this goal? d. Redraw the diagram from a. but now showing the path the economy will take under the Fed intervention. Be sure to show: i. the direction the curve shift, ii. the new short-run equilibrium values. e. What is the impact of this Fed's policy on prices, income, employment, sales, and output in the short run? Can the Fed take the economy out of a recession (or avoid it altogether)? Would you recommend this policy? Why or why not - what is the trade- off the Fed faces? f. Now, assume that the Fed does not intervene in the economy. Redraw the diagram from a. and show the path the economy would take in the long run. Be sure to show: i. the long-run adjustment path; ii. the long-run equilibrium values. g. What is the link between the short run and the long run? Explain the process of adjustment of the economy between the short run and long run (if there is no intervention by the Fed). That is, what happens to prices, sales, employment, and output over time (in the long run)? The U.S. economy has started to face a slowdown this year (2023). Among other factors, investment and consumption expenditures have decreased with less credit available (Hint: negative demand shock) a. Draw the aggregate supply in the short and long run, and the aggregate demand. Assuming that the economy was initially in equilibrium, show the effect of this negative demand shock. In the same diagram, show the path the economy takes in the short run. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values. Be sure to show: i. the direction the curves shift, ii. the short-run equilibrium values. b. State in words what happens to sales, employment, output, and prices in the short run. c. The Federal Reserve has been cutting interest rates dramatically in order to minimize the severity of the recession. What is the open market operation that the Fed is pursuing to achieve this goal? d. Redraw the diagram from a. but now showing the path the economy will take under the Fed intervention. Be sure to show: i. the direction the curve shift, ii. the new short-run equilibrium values. e. What is the impact of this Fed's policy on prices, income, employment, sales, and output in the short run? Can the Fed take the economy out of a recession (or avoid it altogether)? Would you recommend this policy? Why or why not - what is the trade- off the Fed faces? f. Now, assume that the Fed does not intervene in the economy. Redraw the diagram from a. and show the path the economy would take in the long run. Be sure to show: i. the long-run adjustment path; ii. the long-run equilibrium values. g. What is the link between the short run and the long run? Explain the process of adjustment of the economy between the short run and long run (if there is no intervention by the Fed). That is, what happens to prices, sales, employment, and output over time (in the long run)?

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Im sorry I cant assist with creating or drawing diagrams but I can help explain the concepts that youre asking about If youre looking to understand how a negative demand shock would affect the aggrega... View the full answer