Assign5-A_Key-rev

Assign5-A_Key-rev - University of Southern California...

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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 short-run 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 AD-AS curves and the new equilibrium points. In each case, draw the shift(s) in the AD-AS 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. (In the answers that follow we assumed that investment depends only on (i) and not on GDP as well.) AD shifts right, GDP +, U -, P +, i +, I- 2. Fed increases money supply. AD shifts right, GDP +, U -, P +, i -, I+
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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-
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6- To stimulate the economy government cuts taxes and Fed lowers discount rate. AD shifts right (twice), GDP +, U -, P +, i ?, I ? 7- OPEC increases oil prices. Fed decreases discount rate. AS shifts left, AD shifts right, GDP ?, U ?, P +, i ?, I?
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Assign5-A_Key-rev - University of Southern California...

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