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Unformatted text preview: University of Southern California Department of Economics ECON 205 Principles of Macroeconomics Spring 2009 Prof. Safarzadeh Assignment # 5 Student Name :_________________ I. In each problem below, the shortrun equilibrium of the economy is illustrated by the intersection of the aggregate demand (AD) and the aggregate supply (AS), respectively. For any assumption given below, you are to illustrate the economy with the appropriately shaped ADAS curves and the new equilibrium points. In each case, draw the shift(s) in the ADAS curves which result from the exogenous actions taken and indicate in the space provided whether each variable will increase (+) , decrease () , remains unchanged (0) , or have ambiguous sign (?) . Please number the curves so that the direction of each shift will be clear. Mark the original equilibrium by E 1 and the final equilibrium by E 2 or E 3 . Unmarked graphs will be discounted in credit. 1. Government increases spending. AD shifts right, GDP +, U , P +, i +, I? 2. Fed increases money supply. AD shifts right, GDP +, U , P +, i , I+. 3 Fed increases discount rate AD shifts left, GDP , U +, P , i +, I. 4 Consumer confidence is rising and stock market indices are increasing. AD shifts right (twice), GDP +, U , P +, i +, I? 5 The government proposed tax cut is approved by congress. AD shifts right, GDP +, U , P +, i +, I? 6 To stimulate the economy government cuts taxes and Fed lowers discount rate. AD shifts right (twice), GDP +, U , P +, i ?, I? or +. 7 OPEC increases oil prices. Fed decreases discount rate. AS shifts left, AD shifts right, GDP ?, U ?, P +, i +, I? 8 OPEC decreases oil prices. Government increases spending. AS shifts right, AD shifts right, GDP +, U , P ?, i ?, I? or +....
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This note was uploaded on 09/02/2009 for the course ECON 205 taught by Professor Kamrany during the Spring '07 term at USC.
 Spring '07
 KAMRANY
 Macroeconomics

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