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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?
You are tasked with manufacturing 12 commercial aircraft per month. A new OSHA rule requires that welders be given paid 2 hour break for every 2 hours of work to prevent carpel tunnel syndrome. Using the isoquant isocost graph as an aid, explain what..
The payoff to a company that enters is its gross profit minus its entry cost, while the payoff to a company that does not enter is 60. Find a symmetric Nash equilibrium in mixed strategies.
Most industrial farms hire migrant workers, so the market for such workers is reasonably taken to be perfectly competitive. Suppose that all farms individually have a short-run elasticity of labor demand of –0.5. Explain why the reduction in employme..
Determine the balance at the end of year 5 if a new account is opened with $500 and periodic payments of $200 are deposited into it for the 5 years. The account has a 5% NAR with the following conditions.
Set up a Ricardo-type comparative advantage numerical example with two countries and two goods. Distinguish “absolute advantage” from “comparative advantage” in the context of your example. Then select an international terms-or-trade ratio and explai..
What are the two arguments for government support of secondary education? What is an external benefit? If there is an external benefit in a market, will the free market equilibrium yield an optimal solution?
Many are concerned about health conditions in American schools, particularly since children frequently catch infectious diseases from each other. One child with an illness might give the disease to all of the others at
Suppose that in a year an American worker can produce 100 shirts or 20 computers and a Chinese worker can produce 100 shirts or 10 computers. Explain at what price of computers (in terms of shirts) the two countries might trade. Who has the comparati..
If there are barriers to entry into a market, it is possible for the existing firm to earn positive economic profit. All of the following explain this concept except; 1. it is possible for a firm in this situation to charge any price it wants and thu..
Elucidate how much did Chinese purchases of financial also real assets abroad exceed foreign purchases of Chinese financial also real assests.
Edmund has the utility function U(x, y) = 2xy + 1. The prices of x and y are both $1 and Edmund has an income of $20. How much of each good will he demand? A tax is placed on x so that it now costs Edmund $2 while his income and the price of y stay t..
Mitchell Bancorp is considering making a loan at 3% interest (c/a) to Sohn Co to buy a machine tool worth $300 million. The tool has no salvage value and is depreciated over 3 years by sum-of-years digits. In this state, Sohn Co pays 50% tax. Assume ..
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