11-1.
a. The current equilibrium interest rate- Each dollar save will increase at any given interest rate, so the desired saving curve as an upward-sloping supply will shift rightward. Eventually, this will cause the equilibrium interest rate to decline.
b. Current equilibrium real GDP- There is no effect on current equilibrium real GDP because people are saving now to invest in the future and in the classical model the vertical LRAS always applies.
c. Current equilibrium Employment- There is not effect on the current equilibrium employment because a change in the saving due to the interest rate does not directly affect the demand for labor or the supply of labor in the classical model.
d. Current equilibrium investment- A decrease in the equilibrium interest rate, business wish to engage in more investment because it is more profitable to invest. This will cause a rightward and downward movement along the demand curve for investment. The desired investment will increase. e. …show more content…
Future equilibrium real GDP- If there is an increase in current investment, it will contribute to an addition to the nation’s capital stock or capital accumulation. This will indicate an increase in future productions and higher equilibrium real GDP in the future.
11-3. “There is absolutely no distinction between the classical model and Chapter 10’s model of long-run equilibrium.” Is this statement true or false? That statement is false because the classical model implies that even in the short-run the economy’s aggregate supply curve in the same as its long-run aggregate supply curve. In the short-run prices adjust so fast that the economy is essentially always on or quickly moving toward LRAS. 11-6. should they increase or decrease the quantity of money in circulation? Why? To prevent an increase in the equilibrium price level on upward-sloping SRAS curve. The policymakers should decrease the quantity of money in circulation because that will keep the LRAS real GDP stable. For this reason, a decrease the quantity of money in circulation will serve as an incentive for people to consume more oil and the SRAS will shift rightward to be constant with the LRAS real GDP per year and the AD. 11-7. Should they increase or decrease the quantity of money in circulation? Why? To prevent a short-run decrease in real GDP from taking place after the temporary rise in oil prices shift the SRAS curve leftward. The policymaker should increase the quantity of money circulation because this will cause the AD curve to move rightward to keep the equilibrium real GDP constant without declining in the short-run. 11-8. Based on your answers to Problems 11-6 and 11-7, can policymakers stabilize both the price level and real GDP simultaneously in response to a short-lived but sudden rise in oil prices? It’s impossible for policymakers to stabilize …show more content…
That eventually will lead to a new short-run equilibrium at E2. The equilibrium prices level will fall as other things being equaled the short-run equilibrium level of real GDP per year will fall too. The short-run outcome will rise in the unemployment rate causing the LRAS to be stable of real GDP per year. A recessionary gap will occur due to the shift in AD and a short run reduction of equilibrium different from the LRAS at E1. It 's the difference between the short-run equilibrium level of real GDP at less than the real GDP of full employment on
a. The current equilibrium interest rate- Each dollar save will increase at any given interest rate, so the desired saving curve as an upward-sloping supply will shift rightward. Eventually, this will cause the equilibrium interest rate to decline.
b. Current equilibrium real GDP- There is no effect on current equilibrium real GDP because people are saving now to invest in the future and in the classical model the vertical LRAS always applies.
c. Current equilibrium Employment- There is not effect on the current equilibrium employment because a change in the saving due to the interest rate does not directly affect the demand for labor or the supply of labor in the classical model.
d. Current equilibrium investment- A decrease in the equilibrium interest rate, business wish to engage in more investment because it is more profitable to invest. This will cause a rightward and downward movement along the demand curve for investment. The desired investment will increase. e. …show more content…
Future equilibrium real GDP- If there is an increase in current investment, it will contribute to an addition to the nation’s capital stock or capital accumulation. This will indicate an increase in future productions and higher equilibrium real GDP in the future.
11-3. “There is absolutely no distinction between the classical model and Chapter 10’s model of long-run equilibrium.” Is this statement true or false? That statement is false because the classical model implies that even in the short-run the economy’s aggregate supply curve in the same as its long-run aggregate supply curve. In the short-run prices adjust so fast that the economy is essentially always on or quickly moving toward LRAS. 11-6. should they increase or decrease the quantity of money in circulation? Why? To prevent an increase in the equilibrium price level on upward-sloping SRAS curve. The policymakers should decrease the quantity of money in circulation because that will keep the LRAS real GDP stable. For this reason, a decrease the quantity of money in circulation will serve as an incentive for people to consume more oil and the SRAS will shift rightward to be constant with the LRAS real GDP per year and the AD. 11-7. Should they increase or decrease the quantity of money in circulation? Why? To prevent a short-run decrease in real GDP from taking place after the temporary rise in oil prices shift the SRAS curve leftward. The policymaker should increase the quantity of money circulation because this will cause the AD curve to move rightward to keep the equilibrium real GDP constant without declining in the short-run. 11-8. Based on your answers to Problems 11-6 and 11-7, can policymakers stabilize both the price level and real GDP simultaneously in response to a short-lived but sudden rise in oil prices? It’s impossible for policymakers to stabilize …show more content…
That eventually will lead to a new short-run equilibrium at E2. The equilibrium prices level will fall as other things being equaled the short-run equilibrium level of real GDP per year will fall too. The short-run outcome will rise in the unemployment rate causing the LRAS to be stable of real GDP per year. A recessionary gap will occur due to the shift in AD and a short run reduction of equilibrium different from the LRAS at E1. It 's the difference between the short-run equilibrium level of real GDP at less than the real GDP of full employment on