hw 14 - 1eExerciee12 {J} Exercise Score: 1 oF 1 pt...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 4
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 6
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 8
Background image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1eExerciee12 {J} Exercise Score: 1 oF 1 pt Assignment Score: 98.8% [19.75 oF 2|] p15] ID of ID complete On the graph below: use the line drawing tool to show the Price level 0; effect of increased investor pessimism about the future profitability ofthe economy. Label your line AD]. E TGifhich of the following would n_ot have the same effect on AD as you showed above? a decrease in government spending V an increase in the price level an increase in income taxes decreased demand for US. exports _ AD 1 ADD All of the above factors would cause a decrease in AD_ Real GDP. v lEEXEI’ClSE'l4 {J} Exercise Score: 1. 0F 1. pt Assignment Score: 98.8% (1.935 0F 20 p15] 2|} of 20 complete [Related to Solved Problem #1] Explain whether each of the following will cause a shift of the AD curve or a movement along the AD curve. a. Firms become more optimistic and increase their spending on machinery and equipment. Because this is a change in iiweslment , the aggregate demand curve will increase h. The federal government increases taxes in an attempt to reduce a budget deficit. Because is a change in consmnption , the aggregate demand curve will decrease c. The TLS. economy experiences 4—percent inflation. Because this is a change in the price level , the aggregate demand curve will not change . 1eExercis-321 (J) Exercise Score: 1. of 1 pt Assignment Score: 98.8% (1.935 of 20 pts) 2|} of 2|) complete Will each of the following cause a shift of the long run aggregate supply curve or a movement along the LEAS curve? a. The price level increases. Because this is a change in the price level , the LEAS curve will not change . b. The labor force increases. Because is a change in the productive capacity of the economy , the LEAS will increase c. There is an increase in the quantity of capital goods. Because this is a change in the productive capacity ofthe economy , the LEAS will increase d. Te chnolo gical change 0 ccurs. Because this is a change in the productive capacity of the economy , the LEAS will increase lEEKBrClSB Exercise Score: 1 0F 1. pt Assignment Score: 98.8% (1.9.?5 0F 20 pts) 2|} of 2|} complete Will each of the followmg events cause a shift in me short—run aggregate supply curve (SEAS) or a movement along me curve? a. A higher price level Because this is a change in the price level the SEAS curve Will not change 11. An increase in what the price level is expected to he in the future Because is a change in a change in expectations about future prices , the SEAS wfl] decrease leftward) _ c. The price level is currently higher than expected. Because this is a change in an adjustment to past errors in expectations about future prices me SEAS wfll decrease (shift leftward) . d. An unexpected increase in the price of an important raw material Because this is a change in an unexpected change in the price of an important natural resource , the SEAS will decrease leftward) _ (“median i.- »nn-u-|.=.+.=. 1eExercise24 {JD Exercise Score: 1. of 1. pt Assignment Score: 98.3% (1.9.795 0F 20 Fits) 20 of 2|) complete Suppose that workers and firms could always predict next year's price level with perfect accuracy. Under these circumstances, is it likely that the ERAS curve would still slope upward (rather than being vertical, like LRAE)? V No, in this case, the ERAS would be the same as the LRAS. No, in this case, SRAE would he downward sloping because quantity supplied would increase as the price level falls. Yes, because higher price levels would still reduce household wealth and consumption spending. Yes, because worker and firm price predictions do not affect ERAS. ‘leExereiseE‘l Exercise Score: 1. OF 1 pt Assignment Score: 53.3% (19.?5 of 2D FIE] 20 of 20 complete Suppose the price of a barrel oforl increases from $50 to $i‘0. Which of the following diagrams shows the effect of the increase in the price of oil? (Green dashed lines indicate change from the original eqmlibri'mn.) V Price level a; Price level a; Price level a; Price level a; 10 LRflS SMS 10 LRflS SMS 10 l'RflS SRILS 10 LRflS 5M5 o' I i I. : I, 11D M} 134D —l—l—| —l—l—| —l—l—| U 10 El ‘10 ‘10 ‘10 RealGDF'.Y REEEIGIZIIF'.‘I‘r Real GDP.Y REEEIGIZIIF'.‘I‘r “a ". ". “a "a ". ". “a "a ". a@@@@@@@@@@mb 1mmn Exercise Score: 1. oF 1 pt Assignment Score: 98.8% (19.25 oF 20 p15] 20 of 20 complete :- F'rlce level [GDP Deflator. 2000 =100} 0.: 1) Show the resulong short-run eqm'librimn on your diagram using the line drawing tool and labeling any line LRAE ERAS that you draw. (More: ifyorr are no: prampfedfor a label, you have used the wrong drming roof). 2) Mark the new eqtn'librimn point using the point drawing tool__ E “Thich of the following best explains how the economy wall adjust back to long—run equlibrimn? Aggregate demand will increase, restoring the original equilibrium price and quan'tity. AD €5.32 Real GDF' [trillions of'2000 dollars} V Aggregate supply wifl decrease (shift leftward) as firms and workers adjust to the new price level. Aggregate demand will decrease, restoring the original eqmlibriurn price and quanlity. n H I. . I I m 1eExerciee33 I:J:I Exercise Score: l. of 1. pt Assignment Score: 93.3% (19.?5 of 20 p13] 20 of 20 complete -n... u“... ......D rut... fl... .. - .n... u-u..1.-..._,- .. “(up . u... equHbri-mn - Price level [GDP Deflator. 2000 = 100} 0: LRAS SRAS Assume that there is an unexpected increase in the price of an important raw material. 1) Show the resulting short-run eqmlibrium on your diagram using the line drawing tool. Properly label this 613 line. (Note: you are not promptedfor a label, you """""""""""" " have used Ike wrong drawing roof). 2) Mark the new eqm'libri'mn point using the point drawing tool. E Which of the following best explains how and wig the 5 AD economy will adjust back to long-run eqmlibrimn? 53-5? Real GDP [trillions of2000 dollars} V Aggregate supply will increase (shift rightward) as the recession makes firms and workers willing accept lower wages and prices. a J‘ J‘ J‘ J‘ J‘ J‘ J‘ J‘ J‘ J‘ — leExercis-334 Exercise Score: 1. 0F 1. pt Assignment Score: 98.3% (1.9.795 0F 20 p15] 20 of 20 complete Many economists believe that some wages and prices are "sticky downward,” meaning that these wages and prices increase quickly when demand is increasing but decrease slowly, if at all, when demand is decreasing. This implies that me automatic mechanism that brings me economy back to potential GDP is likely to work when aggregate demand is increasing and when demand is decreasing. quicldy, quickly V quickly, slowly slowly, quickly slow slow y The stickiness of wages and prices has no effect on the speed of the automatic adjustment mechanism. 1eExercise41 Exercise Score: 1 OF 1. pt Assignment Score: 98.8% (19.?5 of 20 pts] 20 of 20 complete A newspaper article published in 2121-04- noted, "About 50 percent of US. Steel's domestic production is tied up right now in long—term contracts pegged below market value price." Source: Charles Sheelum, Days Are Here Again for U.S. Steel Corp," (Allentuvm, PA)Mun1.ing Call, November 23, 213134. What is the most likely reason why US. Steel have entered into contracts to sell steel below the market pric e? When US. Steel entered into the long-term contracts, it was expecting a higher price level in the fixture. Government regulations on steel prices limited the ability of US. Steel to set a higher price. V When US. Steel entered into the long—term contracts, it was expecting a lower price level in the future. In a competitive steel market, US. Steel had no ability to negotiate prices. L'.S. Steel was 113mg to expand market share and thus was selling steel cheaply. 1eExercise-4E {J} Exercise Score: l of 1. pt Assignment Score: 98.8% (1.9.795 of 2D pts] 20 of 20 complete Actual real GDP decreased. * The memployment rate increased. V The price level decreased. Recall that the Great Depression began due to a fall in aggregate expenditures, due to increased pessimism of households and firms. Which of the following dynamic aggregate demand and supply graphs best shows this situation, as based on the information shown in the table? (1930 positions shown with green dashed lines.) v Price level 0.: Price level 0.: Price level 0: Price level 0.: RealGDP.Y RealGDP.‘l’ Real GDP.‘l" RealGDP.Y ill leExercise44 {J} Exercise Score: 1 OF 1 pt Assignment Score: 98.8% (19.?5 0F 20 pts] 20:11:20 complete 111C CtUIlUIIl} 15 111 a IBLCbblU‘IJ. anu Lllub pULCILLlflJ UJJJ.‘ 12!- lchh Lllflll flL'LLl'dJ UJJJT. A There has been a supply shock that has reduced potential output. V The economy can produce a level of GDP above potential GDP in the short run. The data reported by the Department ofCommerce are incorrect. Even though real GDP in 1930 was the same as real GDP in 1969, the imemployment rate increased substantially from 1969 to 191‘0. Which of the following explains how memployment could have increased even though output did not change? V Potential GDP increased but actual GDP did not and thus there is Imemployment. There must have been a decrease in aggregate demand that caused a recession. Because there was more inflaIion, there must be more imemployment. Labor productivity declined= and thus the demand for labor fell= creating unemployment. The table does not give the inflation rates for 1969 and 1930. If the inflation rate for 1930 is greater than the inflation rate for 1969, it is likely that the recession was caused by a supply shock rather than a change in aggregate demand . flung” :-"1---"-:’1l-L- 5. 5. 5. 'H 'H 5. 5. 5. If.“ 'flfl'fl@@@@@@@@@@9' ieExerciseL-a Exercise Score: 1 OF 1 pt Assignment Score: 98.8% {19.795 0F 20 pts] 20 :1le complete [Related to Soiree? Prairies]: #2] Solved Problem 12-2 on the supply shock of 193‘4—191‘5 shows the following table. ACTUAL PDTEXTIAL PRICE. YEAR REA]. GDP REA]. GDP LEVEL 197'4 $4.32 trillion $4.35 trillion 34.? was $4.31 trillion $4.50 million 38.0 Source: US. Department of Commerce: Bureau ofEconomic Analysis In the table, the price level for 1934- is given as 34.? and the price level for 1935 is given as 38.0. The values for the price level are well below 100. Does this informa1ion indicate that infla1ion must have been low dining these years? No, since there was a supply shoclg infla1ion rates must have been high. V Price level values below 100 indicate that the price level is less than in the base year. No, since the price level vahles are less than 100. inflaiion must have been high. Yes. since the price level values are less than 100, infla1ion must have been low. ‘leExereiee40 {J} Exercise Score: 1. of 1. pt Assignment Scare: 53.8511 (1.9.?5 0F 20 pts] 2|} :1le complete Suppose the economy moves from point A in year 1 to VD Price lE'v'El o; . . _ é point B 111 y ear 2. LRAS1 LRAsz 119 3911951 The growth rate of potential GDP from year 1 to year 2 is 11 111' SRASz 3.5? 0.41. (Round {'0 two docimaipiacas.) 116 . . . 1'1: The unemployment rate 111 year 2 15 greater than 111 year 1 1 A 1' 1'13 I I I I ‘ 112 .......... .. The inflation rate 111 year 2 15 1.29 %. [Round in two 111 decimai faces. P 2 110 ADz . 135 : : What 15 the growth rate of real GDP from year 1 to year 2 1D 5 5 is 1.78 %. (R0 and to two decimaipiaces.) 1D? \ I I AD1 106 5 5 :11.2 :114 11.6 105 Real GDP, ‘1’ 1eExereise-J10 Exercise Score: l. of 1. pt Assignment Score: 98.8% 0.9.795 of 20 pts] 20 0F 20 complete An article in the New York Times in August 2003 stated the following: A "[A] cutback 1'11 business spending when the Internet and stock market bubbles burst brought on the recession of 2001 and the prolonged weakness that has existed since then." Source: Louis Unhitelle and Jennifer Bayot, "Business Spending Helps to Offset Lag in Refinancing," New York Times,_-'31ug_15t 9, 2003. What does the article mean by the "Lnternet and stock market bubbles"? Government regulation of stock market speculation leading to unrealistic expectations. increased stock prices lead to increased households wealth and increased aggregate demand. Easy finance opportunities for firms due to the ability to issue new stock. V Excessive optimism of investors about the future of dot—corn companies, leading to inflated stock prices. Why might the bursting of these bubbles affect business spending [invesunentfl TWith fallmg stock prices, firms will no longer invest in shares of stock. V ‘With fallmg stock prices, firms will find it difficult to finance new invesunent through new stock issues. ‘With fallmg stock prices, the government is likely to increase regulation and oversight of accounting practices. Question is complete 1eExerciee411 IZJZI Exercise Score: l. of 1. pt Assignment Score: 98.3% (1.9.25 oF 20 pts] 2|} of 2|} complete The followmg excerpt is from an article in the New York Times: "The number of Americans living below the poverty line increased by more than 1.3 million [during 2002], even though the economy technically edged out of recession dining the same period." Source: Lynette Clemetson. "Census Shows Ranks ofPoor Rose by 1.3 Lfilliort" New York Times. September 3. 2.003. Which of the following is the most likely reason why poverty increased in 2002, even though the economy was in a recovery phase? V The slow recovery in 2002 plus producfivi'ty growth meant that employment growth was slow. In 2002, the economy was about to go into another recession. Minimtnn wage laws prevented new hiring. The end of the stock market bubble reduced household wealth. 1eExercise13 I:J:I Exercise Score: 1. 0F 1. pt Assignment Score: 98.3% (19.25 0F 20 pts) 20 of 20 complete 1Which of the following would n_ot cause a change in the aggregate demand curve”? a decrease in income taxes V a decrease in die price level an increase in the exchange rate increased optimism about the fimrre profitability-‘ of invesunent a decrease in interest rates 1eExerei5e2 {J} Exercise Score: 1. 0F 1. pt assignment Score: 98.8% (19.?5 0F 20 pts] 2|} of 20 complete lenow that real GDP will increase but we can't be A Price Ie'v'el 0.: s RAE 1 sure whether the price level wfll rise or fall because that depends on whether the aggregate supply curve or the aggregate demand curve has shifted farther to the right. I assume that aggregate supply shifts out farther than aggregate demand, so I show the final price level= P3, as being lower than the initial price level, P1} Which of the following is a correct statement about the student's analysis? V The student is incorrect because the aggregate demand curve does not shift because the price level changes. “he student is incorrect because the price level should rise when ERAS increases. “he student's analysis is correct. Real GDP. Y “he student is incorrect because the aggregate demand curve should decrease not increase. 1eExercise3! Exercise Score: 0.?5 oF 1. pt Assignment Score: 98.8% (19.75 0F 20 DE] 20 of 20‘ complete n m“ “ n ‘ Price level [GDP Deflalor. 2000 =100l 0.: c v a. and c 10‘ LRAS Sill-“~51 Suppose initially the economy is at point A. If aggregate Er demand increases fi'om AD], to AD}, the new short run . . ‘ eqmlihmtm will he at point D . SRAsz The long-run eqm'lihriurn point wall he at point C . a" C Which of the following best explains how the economy will adjust from the short—run eqmlihri'um point to the new 4" D long—min eqmlibri'um point? Due to the higher price level, consumption and inyeslment spending will decrease. 2' A Due to the lower price level, firms and workers AU AU will be willing to accept lower wages and prices. 0 1 2 Due to the recession, workers and firms will he Real GDP [trillions 002000 dollars} willing to accept lower wages and prices. V Due to the higher price level, workers will demand higher wages, and firms will raise prices. "x “x “x “x “x “x “x “x "x “x ieExerCise4E Exercise Score: 1. OF 1. pt Assignment Score: 53.8% (1.535 0F 20 p13] 20 of 20 complete A. Suppose that fl1e economy grows from 2006 to 200? without inflation. TWhich of the followmg graphs correctly shows this situation? (200? positions shown with green dashed lines.) V Price level 0: Price level 0.: Price level Q: Price level 0.: ' AD AD 10 '10 Real GDF'. “l'r Real GDF'. ‘l" Real GDF'. ‘l’ Real GDF'. ‘l’ To have growth without inflation, which of the following must be true? Potential GDP must remain constant. AD rnust decrease to reduce inflationary pressure. V AD, SEAS, and LRAS must increase by the same amount. There must he no change in SRAS. There must he no change in AD. ...
View Full Document

This note was uploaded on 03/30/2012 for the course ECON 201 taught by Professor Bonistis during the Spring '11 term at NJIT.

Page1 / 9

hw 14 - 1eExerciee12 {J} Exercise Score: 1 oF 1 pt...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online