Question
Give an example of a favorable shock to aggregate supply. Use the model of aggregate demand and aggregate supply to explain the effects of such a shock. How does it affect the Phillips curve?

Subject
business-economics

Question
Draw the short-run Phillips curve and the long-run Phillips curve. Explain why they are different.

Subject
business-economics

Question
Draw the Phillips curve. Use the model of aggregate demand and aggregate supply to show how policy can move the economy from a point on this curve with high inflation to a point with low inflation.

Subject
business-economics

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Question
Some members of Congress have proposed a law that would make price stability the sole goal of monetary policy. Suppose such a law were passed. a. How would the Fed respond to an event that contracted aggregate demand? b. How would the

Question
For various reasons, fiscal policy changes automatically when output and employment fluctuate. a. Explain why tax revenue changes when the economy goes into a recession. b. Explain why government spending changes when the economy goes into a recession. c. If the government

Question
In which of the following circumstances is expansionary fiscal policy more likely to lead to a short-run increase in investment? Explain. a. When the investment accelerator is large or when it is small? b. When the interest sensitivity of investment is large

Question
Suppose government spending increases. Would the effect on aggregate demand be larger if the Federal Reserve held the money supply constant in response or if the Fed were committed to maintaining a fixed interest rate? Explain.

Subject
business-economics

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Question
An economy is operating with output $400 billion below its natural rate, and fiscal policymakers want to close this recessionary gap. The central bank agrees to adjust the money supply to hold the interest rate constant, so there is no crowding out.

Question
Suppose the government reduces taxes by $20 billion, that there is no crowding out, and that the marginal propensity to consume is ¾. a. What is the initial effect of the tax reduction on aggregate demand? b. What additional effects follow this

Question
Suppose economists observe that an increase in government spending of $10 billion raises the total demand for goods and services by $30 billion. a. If these economists ignore the possibility of crowding out, what would they estimate the marginal propensity to consume