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Unformatted text preview: 1 Economics 2006, Spring 2009, Homework 4 Due in class on Friday, April 24. P (1) P (2) A S A S A D A D f Y Y f Y Y P (3) P (4) A S A S A D A D f Y Y f Y Y In the AS/AD model find the effects of the following changes. In the graphs above the dashed lines represent the new curves. Your choices are (1)Graph 1 (2)Graph 2. (3)Graph 3. (4)Graph 4. (5)None of the above, as the answer cannot be determined without more information. An increase in government purchases will cause _____. An autonomous decrease in the price of a key input into the production process, such as oil, will cause _____. A decrease in taxes will cause ______. An increase in the required reserve ratio by the Fed will cause _____. An increase in nominal wages will cause _____. A decrease in government purchases accompanied by an equal decrease in taxes will cause _____. (Hint: Find the total effects on A .) An open market purchase by the Fed will cause _____. 2 Suppose the Fed increases the nominal money supply, Δ M>0. Answer questions 8-10. Stage 1: The price level and nominal (dollar) wages are fixed. As a result of the change, the interest rate _____ and output _____. 1. increases, increases....
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