What are the effects of this policy on price level-output

Assignment Help Business Economics
Reference no: EM13982151

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?

Reference no: EM13982151

Questions Cloud

Price of some important commodity or service rises rapidly : When the price of some important commodity or service rises rapidly, governments face pressure to do something about it. A variety of options are commonly considered. Governments can, and often do, subsidize the supply of goods seen as vital, commonl..
Supply-side policy focus versus demand-side policy emphasis : Given our still currently high unemployment rate (by historical standards) and low inflation rate, argue "for or against" a Supply-Side policy focus versus a Demand-Side policy emphasis.
Characteristics of clausewitzs theory of warfare : Characteristics of Clausewitz's Theory of Warfare and compare and contrast the key characteristics of Clausewitz's theory of warfare.
Find magnitude and direction of the earths magnetic moment : The earth's magnetic field at the magnetic north pole is directed vertically downward and has a magnitude of 0.62 G. Find the magnitude and direction of the earth's magnetic moment.
What are the effects of this policy on price level-output : 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 le..
Illustrate the operation of a simple chromatography system : Produce an Excel spreadsheet based simulation to illustrate the operation of a simple Chromatography system.The initial spreadsheet should calculate the progress of a single compound through the column using a finite element approach and assuming t..
What other sources of information can you use to effectively : As a manager, how confident would you be in basing strategic decisions on the information that you have obtained online for the SWOT? What other sources of information can you use to effectively complete the SWOT analysis?
Which of the best describes the real balances effect : Which of the following best describes the real balances effect? As the price level rises, the real value of dollar-denominated assets:
When are link state packets sent out : Adhere to APA formatting and reference guidelines when writing your response. Additionally, your response should be free of grammatical errors, use complete sentences, and give specific details to support statements.

Reviews

Write a Review

Business Economics Questions & Answers

  Change in the law is equivalent to a change in technology

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..

  Find a symmetric nash equilibrium in mixed strategies

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.

  Explain why the reduction in employment would be less

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

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.

  Either of your countries not benefit from engaging in trade

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..

  Will the free market equilibrium yield an optimal solution

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?

  Health conditions in american schools

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

  Who has comparative advantage in the production of shirts

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..

  The existing firm to earn positive economic profit

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..

  Chinese purchases of financial also real assets

Elucidate how much did Chinese purchases of financial also real assets abroad exceed foreign purchases of Chinese financial also real assests.

  How much of each good will he demand

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..

  The tool has no salvage value and is depreciated

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 ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd