Wages and prices are sticky-we start at long-run equilibrium

Assignment Help Business Economics

Reference no: EM131174610

Use the following information for the next 7 questions. You should draw a graph that depicts the situation below and use your picture to answer the questions. Assume that wages and prices are sticky and that we start at a long-run equilibrium. Assume that at this initial point, the growth rate of the money supply is 4%, the growth rate of the velocity of money is 3% and that the real economic growth rate is 5%. Now assume that there is a negative real shock. After the negative real shock, the inflation rate in the economy is 7%. Now assume that the federal government decides to increase government spending in order to combat the situation resulting from the rise in oil prices. After the increase in government spending, the growth rate of the velocity of money is 8%.

1. What is the inflation rate at the initial long-run equilibrium (the point where we start)?

2. After the negative real shock, what is the level of expected inflation for the SRAS curve?

3. After the negative real shock, what is the the real economic growth rate?

4. After the federal government increases government spending, what is the growth rate of the money supply?

5. After the federal government increases government spending, what is the inflation rate in your graph?

Reference no: EM131174610

Questions Cloud

The effectiveness of monetary policy is influenced by : The effectiveness of monetary policy is influenced by

What is the basic principle behind supply-side economics : What is the basic principle behind supply- side economics? After supply-side policies were implemented in 1981, the economy pulled out of the 1980 recession and entered an expansionary period. How would a supply-side economist explain the success ..

What will happen to equilibrium price-quantity in markets : An unseasonably warm March is followed by a unseasonably cold April. This leads to a 30% reduction in the yield of apples. As a result, the price of peaches increases. Illustrate this situation with supply and demand curves (draw diagrams for both ma..

About the monetary system : Which of the following statements is not correct about the U.S. monetary system?

Wages and prices are sticky-we start at long-run equilibrium : Assume that wages and prices are sticky and that we start at a long-run equilibrium. What is the inflation rate at the initial long-run equilibrium (the point where we start)? After the negative real shock, what is the level of expected inflation for..

Economy ends up at that is the new long-run equilibrium : You should draw a graph that depicts the situation below and use your picture to answer the questions. Assume that wages and prices are sticky and that we start at a long-run equilibrium. Now think about the point that the economy ends up at that is ..

Why such information concerning price elasticity of demand : This concept has many applications in economics and in other sciences. One application in economics is the price elasticity of demand that measures how sensitive consumer demand is to the change in the price of a product or service. Do you think it i..

Operate small but popular and profitable restaurant : You operate a small but popular and profitable restaurant/bar in a college town. There are several other restaurants and bars nearby. You have conducted a market research study and discovered that the price elasticity of demand for local residents is..

User Account

All Pages