Determine the new equilibrium aggregate price level

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Reference no: EM13186536

Short Answer Questions will ask you to look at different scenarios and policy responses. You will need to illustrate the situations graphically using the models we have studied

Aggregate Demand-Aggregate Supply (AD-AS) model topics:
1) Draw a typical AD-AS diagram with the AD, SRAS and LRAS curves. Label the long-run equilibrium aggregate price level and equilibrium real GDP.

2) Determine and illustrate the effect of a supply or demand shock by shifting the AS or AD curve. (Hint: You will need to know what factors shift the AS and AD curves)

3) Determine the new (short-run) equilibrium aggregate price level and equilibrium real GDP due to a supply or demand shock.

4) From an AS-AD diagram, identify whether the economy is in a recessionary gap or inflationary gap.

5) Determine and show how monetary and/or fiscal policies can move the economy back to long-run equilibrium if it is facing a recessionary or inflationary gap.

6) Show how an open-market operation shifts the AD curve; show how the equilibrium aggregate price level and equilibrium real GDP change due to the Fed action.

Money Supply and Monetary policy topics:
7) Show the effect of an open-market operation on the balance sheet of the Fed and the balance sheet of a bank

8) Calculate excess reserves for a bank and the most the money supply could increase due to an open-market purchase.

9) Draw a money market diagram and determine the shift of the money supply curve due to an open-market operation; determine if the equilibrium interest rate rises or falls. Also be able to determine what happens to investment spending and consumption spending due to the open-market operation.

The Short-Run and Long-Run Phillips Curve topics:
10) On a short- and long-run Phillips curve diagram, show the effect of a supply shock.
11) On a short- and long-run Phillips curve diagram, show the effect of a demand shock.

Reference no: EM13186536

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