What are the effects of this policy on price level-output

Assignment Help Business Economics
Reference no: EM13982151

Consider the AD/AS model built from the IS/LM, with an upward sloping SRAS. The economy was operating at full employment, but it is suddenly hit by unfavorable weather conditions, which increases the expected price level and shifts the SRAS to the left.

Assume that the government decides to keep its policy unchanged.

i. What should the central bank of this country do if its main objective is output stabilization in the short run?

ii. What are the effects of this policy on the price level, output, the real interest rate, consumption and investment?

iii. Compare the long-run equilibrium after this policy is implemented with the long-run equilibrium that this country would have reached without policy intervention. Are the price level, output, real interest rate, consumption and investment different?

Reference no: EM13982151

Questions Cloud

Price of some important commodity or service rises rapidly : When the price of some important commodity or service rises rapidly, governments face pressure to do something about it. A variety of options are commonly considered. Governments can, and often do, subsidize the supply of goods seen as vital, commonl..
Supply-side policy focus versus demand-side policy emphasis : Given our still currently high unemployment rate (by historical standards) and low inflation rate, argue "for or against" a Supply-Side policy focus versus a Demand-Side policy emphasis.
Characteristics of clausewitzs theory of warfare : Characteristics of Clausewitz's Theory of Warfare and compare and contrast the key characteristics of Clausewitz's theory of warfare.
Find magnitude and direction of the earths magnetic moment : The earth's magnetic field at the magnetic north pole is directed vertically downward and has a magnitude of 0.62 G. Find the magnitude and direction of the earth's magnetic moment.
What are the effects of this policy on price level-output : Consider the AD/AS model built from the IS/LM, with an upward sloping SRAS. The economy was operating at full employment, but it is suddenly hit by unfavorable weather conditions, which increases the expected price level and shifts the SRAS to the le..
Illustrate the operation of a simple chromatography system : Produce an Excel spreadsheet based simulation to illustrate the operation of a simple Chromatography system.The initial spreadsheet should calculate the progress of a single compound through the column using a finite element approach and assuming t..
What other sources of information can you use to effectively : As a manager, how confident would you be in basing strategic decisions on the information that you have obtained online for the SWOT? What other sources of information can you use to effectively complete the SWOT analysis?
Which of the best describes the real balances effect : Which of the following best describes the real balances effect? As the price level rises, the real value of dollar-denominated assets:
When are link state packets sent out : Adhere to APA formatting and reference guidelines when writing your response. Additionally, your response should be free of grammatical errors, use complete sentences, and give specific details to support statements.

Reviews

Write a Review

 

Business Economics Questions & Answers

  Fixed costs exist only in the short run

Explain the statement: "Fixed costs exist only in the short run. In the long run there are no fixed costs." Why might the time frame for the "short run" differ from one industry to the next? Provide examples of two industries with different time fram..

  What would be equilibrium price-quantity-consumer surplus

Suppose demand is still described by P=5.10-0.80Q and supply is described by P=1.90+0.20Q. If there are no price controls, what would be the equilibrium price, quantity and consumer surplus?

  Calculate the changes in consumer and producer surplus

In June 2008, the U.S. retail gas price jumped from $3 to $4 a gallon. This is a 33% increase in price from January 2008. During that time, the total quantity of gasoline purchased fell by 3%. Supplies of gasoline produced also decreased from one mil..

  Politicians use to manage and influence

Do current politicians use to manage and influence to get reelected. Is this a "valid" use of political power.

  Decline in marginal costs for one member of a cartel

Suppose there is a decline in marginal costs for one member of a cartel. What impact will this have on the incentive of that firm to cheat on the cartel agreement? Explain.

  Calculate the accounting break-even point

We are evaluating a project that costs $837,000, has a thirteen-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 156,000 units per year. Price per unit is $35,..

  Assuming that there are no direct expenditure offsets to

Assuming that there are no direct expenditure offsets to fiscal policy, how much should the government increase taxes? Explain by giving appropriate reasons.

  Required to maintain quantity demanded for chicken biscuits

The demand curve for chicken biscuits is estimated to be: Ln (Q xd) = 100 - .75 ln (Px) - 4 n (Py) + 1.5 ln (M) Where x represents chicken biscuits, y represents chocolate milk and M represents income. If income drops by 2%, holding constant the pric..

  In the numerical example given in the text

In the numerical example given in the text, the inverse demand function for the depletable resource is P = 8 -0.4q and the marginal cost of supplying it is

  Positive supply in the long run

If the cost of plaster and labour is $9 per gnome, what is the lowest price of gnomes at which there is a positive supply in the long run? (Remember that in order for there to be a positive supply in the long run, producers need to get their money ba..

  Assumes the perfectly competitive firm

Assumes the perfectly competitive firm is in long-run equilibrium also there is an rise in Demand

  Compute the price elasticity cross price elasticity

Assuming that wheat and barley both sell for $1, and income is $20, compute the price elasticity, cross price elasticity and income elasticity for wheat.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd