Hurricane Katrina resulted in a decline in oil production infrastructure along the gulf coast. As a result there was an unexpected decline in oil and natural gas supplies in 2005. Suppose that this caused an increase in the price level and a decline in
real GDP in 2006. Also assume that potential real GDP continued to grow due to other factors. You can assume the aggregate demand curve did not change. Show the macroeconomic equilibrium for 2005 and 2006 using the dynamic aggregate supply and aggregate demand model.
What will be an ideal response?
The economy began at the point (Y1, P1 ) on the aggregate demand curve in 2005. The loss in supply of oil and natural gas were supply shocks which shifted the SRAS curve to the left. The economy ended up at the short-run equilibrium in 2006 with the price level rising from P1 to P2 and real GDP falling from Y1 to Y2. The economy ended up at a real GDP level Y2 which was below the potential level of GDP for 2006 which was at Y3. Unemployment rose in the economy as a result.
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Which of the following decreases the demand for money?
A) an increase in the price level B) an increase in the quantity of money C) a decrease in real GDP D) a decrease in the cost of printing money
Does the expectations hypothesis allow for people to have a preference for longer-term investments? Explain
What will be an ideal response?
Suppose an economy consists of 500,000 individuals 16 years and older, 260,000 are employed, and 21,000 are unemployed but actively seeking work. In this example the unemployment rate is approximately:
A. 4.2 percent. B. 6.1 percent. C. 7.5 percent. D. 8.0 percent.
Refer to the budget line shown in the diagram above. The absolute value of the slope of the budget line is:
A) MUC/MUD. B) one-half. C) PD/PC. D) PC/PD.