Reference no: EM13979349
Use the following information for the next 9 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 6%, the growth rate of the velocity of money is 2% and that the real economic growth rate is 4%. Now assume that oil prices increase. After the increase in oil prices, the inflation rate in the economy is 9%.
Now assume that the federal government decides to increase government spending in order to combat the rise in oil prices. After the increase in government spending the total spending growth is now 14%.
1. At the point the economy starts (before the increase in oil prices), what is the inflation rate?
2. After the increase in oil prices (point 2), what is the level of expected inflation for the SRAS curve?
3. After the increase in oil prices (point 2), what is the the real economic growth rate?
4. After the increase in government spending (point 3), what is the growth rate of the money supply?
5. After the increase in government spending (point 3), what is the growth rate of the velocity of money?
6. After the increase in government spending (point 3), what is the inflation rate in your graph?
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