How does the shape of the aggregate supply curve affect macroeconomic analysis and policymaking? Illustrate your answer with the appropriate graphs.
What will be an ideal response?
If the aggregate supply curve is relatively flat, as depicted in Figure 31-3 , expansionary fiscal or monetary policy can buy large increases in real GDP without significant inflationary costs. Conversely, contractionary policy will cause significant losses of income and employment without much reduction of inflation. If the aggregate supply curve is relatively steep expansionary fiscal or monetary policy will generate significant inflation without the benefit of large increases in real GDP or employment. Conversely, contractionary policy can achieve significant reductions in inflation without causing large reductions of real GDP or large increases in unemployment.
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Luigi is willing to lend Klaus $5,000 for one year at a nominal rate of interest of 7%. Both Luigi and Klaus expect the rate of inflation to be 2% in the next year. How much additional purchasing power will Luigi have in one year?
A. $350 B. $5,350 C. $5,250 D. $250
As more people started using smart phones, the number of smart phone applications available rose, increasing the smart phone's value to those who already owned one. This is an example of a(n) ________
A) pecuniary externality B) network externality C) moral hazard D) adverse selection
Refer to Table 4-4. If a minimum wage of $10.00 an hour is mandated, what is the quantity of labor demanded?
A) 390,000 B) 370,000 C) 350,000 D) 40,000
Describe how the labor force, the nation's capital stock, and the rate of technical progress contribute to potential GDP growth and labor productivity