Explain long run equilibrium and inflation rate

Reference no: EM13175449

a) Suppose the economy is initially in long run equilibrium and the U.S. stock market has a prolonged decrease in shareholder value. Use the AD-AS model to predict short-run changes to real GDP and the aggregate price level..

Using the AD-AS model explain how the economy will adjust in the long run. Should the government undertake any proactive fiscal or monetary policy in this situation? Explain your reasoning

(b) Suppose the annual inflation rate is at 2% and 8.5% of the labor force is currently unemployed. If you were on the Fed's Open Market Committee, what action would you prescribe? How would this affect the economy, the inflation rate, and the unemployment rate?

(c) Suppose that the inflation rate is currently 4%. The level of potential real GDP is estimated at $4 trillion and the level of current real GDP is estimated at $3.75 trillion. Use the Taylor rule to estimate the target Federal funds rate.

Reference no: EM13175449

Questions Cloud

The purpose of dissolving the acetanilide in glacial acetic : What is the purpose of dissolving the acetanilide in glacial acetic acid prior to beginning the nitration reaction? What happens when you mix sulfuric acid with nitric acid?

Define the average mass of a carbon atom : The average mass of a carbon atom is 12.011. Assuming you were able to pick up only one carbon atom, the chances that you would choose a carbon atom with a mass of 12.011 is:

Determine the present value of the debt : Borrowed $100,000 for six years. Interest payments of $6,200 will be due at the end of each year and the $100,000 will be repaid at the end of the sixth year.

What about uv radiation affects ozone : What does ozone do that oxygen (or any other molecule) do? How? Ozone is created in what is believed to be a two-step process. It is destroyed naturally in one of two pathways. What are those reactions? On Your Own: What is the role of UV in the d..

Explain long run equilibrium and inflation rate : Suppose the annual inflation rate is at 2% and 8.5% of the labor force is currently unemployed. If you were on the Fed's Open Market Committee, what action would you prescribe? How would this affect the economy, the inflation rate, and the unemplo..

Explain why if benzoic acid were substituted : Explain why if benzoic acid were substituted for 2-methoxyphenylacetic acid in this experiment the enantiomeric ratio of the yeast reduction product could not be determined by 1 H NMR.

Explain liquid mixture composed of methane : Estimate the viscosity of a liquid mixture composed of methane = 59.30 mole%, propane = 37.46 mole%, and n-octane=3.24 mole% at a temperature of 311 K and pressure

Calculate the current level of (equilibrium) gdp : )Now suppose that some of President's close political advisers are urging him to adjust taxes but not spending. Assuming the same initial level of G (=500), how would you advise the administration to adjust taxes to reach potential GDP?

Equal initial pressures of hydrogen and nitrogen : Equal initial pressures of hydrogen and nitrogen are added to a container at 298K where they react as in question 1. (question 1 is at the end) a. If the equilibrium pressure of hydrogen is 1.5 atm, determine the equilibrium pressures of nitrogen a..

User Account

All Pages