Draw typical aggregate demand-aggregate supply model

Assignment Help Business Economics

Reference no: EM131378553

Assume that an economy is in the long-run equilibrium with the GDP deflator of 150 and potential output of $40 billion. Draw a typical aggregate demand-aggregate supply model using this information. Explain each curve/line.

a. The economy is experiencing a shock – a sharp drop of stock prices.

i. Show on the graph what happens in the short run. Explain.

ii. What type of output gap is this? Calculate the output gap.

b. Explain what will happen in the long run due to self-correction. Show the appropriate shift on the graph.

c. What problem is the economy facing?

d. The government decides to intervene. What policies should it implement? What is the goal of these policies?

e. What is the most challenging shock for the policy makers to deal with? Explain why.

Reference no: EM131378553

Questions Cloud

Managing cultures : Managing Cultures: Take into consideration doing business in China is there historical, or geographical concerns that may be of importance. (One excellent resource to consider for this assignment is Kiss, Bow and Shake Hands.)

Suppliers produce more goods-services when price increases : Phillip’s Curve: For each of the following draw an AD/AS diagram and a corresponding Phillip’s curve assuming the following: suppliers produce more goods and services when price increases; Again assume actual GDP is at 9,200, in both diagrams show th..

Lowest to highest interest rates paid to the bank : Which of the following correctly orders bank assets from lowest to highest interest rates paid to the bank?

Money market graph side-by-side : Below draw an AD/AS graph and a money market graph side-by-side. For the money market, use an upward sloping money supply curve and assume that the equilibrium interest rate in the money market is 5%. Is this rule based policy pro-cyclical or counter..

Draw typical aggregate demand-aggregate supply model : Assume that an economy is in the long-run equilibrium with the GDP deflator of 150 and potential output of $40 billion. Draw a typical aggregate demand-aggregate supply model using this information. The economy is experiencing a shock – a sharp drop ..

Affects olympia credit union assets and liabilities : Rosa banks with Olympia Credit Union and Rosa’s employer uses Washington National Bank. Rosa receives a salary of $2,500 every month which is directly deposited into her checking account. Explain how this affects Olympia Credit Union’s assets and lia..

Suppose the market has reached the equilibrium : The Hull Petroleum Company and Inverted V are retail gasoline franchises that compete in a local market to sell gasoline to consumers. Hull and Inverted V are located across the street from each other and can observe the prices posted on each other’s..

Extremelyconcerned with the rapidly raising prices : What are the fiscal policy instruments? What are the fiscal policy types? Currently the economy is facing an inflationary gap and the government is extremelyconcerned with the rapidly raising prices.

The changes on the bank of america balance sheet : Suppose that a lottery winner deposits $5 million in cash into her transactions account at the Bank of America. Assume a reserve requirement of 20 percent and no excess reserves in the banking system prior to this deposit. Show the changes on the Ban..

User Account

All Pages