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Why is the long-run aggregate supply curve located at this output rather than below or above potential output?
(Long-Run Adjustment) In the long run, why does an actual price level that exceeds the expected price level lead to changes in the nominal wage?
(Output Gaps and Wage Flexibility) What are some reasons why nominal wages may not fall during a contractionary gap?
(Contractionary Gap) What does a contractionary gap imply about the actual rate of unemployment relative to the natural rate?
(Potential Output) Define the economy's potential output. What factors help determine potential output?
What is the value of the spending multiplier? By how much would the real GDP demanded change if planned investment increased by $100 billion?
Draw an aggregate demand curve that shows the economy at an equilibrium level of real GDP of $8 trillion when the price level is P 5 120.
Illustrate the effect of a decrease in the price level to P 5 80. Identify the new equilibrium.
What happened to consumption in Japan? Why did this happen? What was the impact on aggregate demand there?
For each of the following values for the MPC, determine the size of the simple spending multiplier and the total change in real GDP demanded.
Suppose that the MPC is 0.8 and that $12 trillion of real GDP is currently. By how much would it have to increase government purchases to achieve this goal?
What is the value of the multiplier? Explain why the multiplier is related to the slope of the consumption function.
This chapter assumes that investment is autonomous. What would happen to the size of the multiplier if investment increases as real GDP increases? Explain.
Analyze the story you have chosen, and illustrate the event using both the aggregate expenditure line and the aggregate demand curve.
Illustrate how a change in aggregate expenditures would lead to an increase in the equilibrium level of GDP to $10 trillion.
Illustrate the effect of an increase in the price level to P = 120. Identify the new equilibrium.
Discuss what is the size of the U.S. labor force? If 85 million adults are not working, what is the unemployment rate?
Analyze Why is a relatively constant and predictable inflation rate less harmful to an economy than a rate that fluctuates unpredictably?
Explain as carefully as you can why borrowers would be willing to pay a higher interest rate if they expected the inflation rate to increase in the future.
(Inflation and Relative Price Changes) What does the consumer price index measure? Does the index measure changes in relative prices? Why, or why not?
(Anticipated Versus Unanticipated Inflation) If actual inflation exceeds anticipated inflation, who will lose purchasing power and who will gain?
In countries such as Brazil and Russia which had problems with high inflation the increased use of another country's currency. Why do you suppose this occurred?
What factors could make the official rate overstate the actual unemployment rate?
How has the U.S. unemployment rate compared with rates in other major economies? Why should we be careful in comparing unemployment across countries?
Use aggregate demand and aggregate supply curves to show an economy initially at equilibrium. Illustrate how a change in aggregate supply would cause deflation.