Suppose the economy is in a long-run equilibrium when a positive demand shock occurs. On the graphs above, show what happens to bring the economy back to long-run equilibrium, assuming that there is no policy response
In words, describe how the graph would be different, if policy makers did intervene.
The graphs should be similar to Fig. 13.2, with AD shifting right and AS shifting up. If there is a policy response, the MP curve shifts up and AD shifts back to the left. There is no shift of AS, so inflation returns to its original rate.
You might also like to view...
Assume a simplified banking system subject to a 20 percent required reserve ratio. If there is an initial increase in excess reserves of $100,000, the money supply
A. increases $100,000. B. increases $500,000. C. increases $600,000. D. decreases $500,000.
Refer to Scenario 1 . Explain how this economy might be able to produce 45 fish and 45 crabs?
What will be an ideal response?
Appendix: Suppose that a private firm wants to go public to give the owners a chance to retire. It follows the lead of the Google IPO by using a modified Vickrey (or uniform price) auction. The owners of the firm plans to sell 1 million shares and hope to raise at least $10 million from the auction. The following bids were submitted. Bob 250,000 shares at $12 Sam 350,000 shares at $13 Mary
300,000 shares at $9 Sue 100,000 shares at $10 Ravi 450,000 shares at $11 a. The market clearing price is $13, and the sellers of the firm get $13 million. b. The market clearing price is $12, and the sellers of the firm get $13 million. c. The market clearing price is $11, and the sellers of the firm get $11 million. d. The market clearing price is $10, and the sellers of the firm get $10 million. e. The market clearing price is $9, and the sellers of the firm get$9 million
Which of the following is true of markets? a. Markets help to acquire a specialized set of skills and use the pay to buy goods and services
b. Markets allow consumers to consume only those goods they can produce. c. Markets are based on reciprocity and require a mutual coincidence of wants between traders. d. A market is a cashless economic system in which services and goods are traded at negotiated rates.