Assign6-revised

# Assign6-revised - University of Southern California...

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University of Southern California Department of Economics ECON 205 Principles of Macroeconomics Spring 2010 Prof. Safarzadeh Student Name :_____________________ Assignment # 6 Discussion Section : Day ____Hour_____ I. In each problem below, the short-run and the long-run equilibrium of the economy is illustrated by the intersection of the aggregate demand (AD) and the short-run aggregate supply (SAS) and the long-run aggregate supply (LAS), 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 . Unmarked graphs will be discounted in credit. 1. Government increases spending. 2. OPEC raises oil prices.

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3- Fed increases discount rate 4- Consumer confidence is rising and stock market indices are increasing. 5- The government proposed tax cut is approved by congress.
6- To stimulate the economy government cuts taxes and Fed lowers discount rate. 7- OPEC increases oil prices. Fed decreases discount rate. 8- OPEC decreases oil prices. Government increases spending.

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5- Answer this question using the following graph. In the above figure, suppose that the economy is at point A when the quantity of money increases. In the short run, the economy will move to point ____. At the new equilibrium price has increased by _____ % and real GDP has increased by ______%. Now, suppose that the economy is at point A when foreign countries begin an expansion and buy more U.S.-made goods. In the short run, this change creates a movement to point _______ and an eventual increase in _______. A shift in AD from ADo to AD1 will result in what kind of inflation _____________________. A shift in AS from SASo to SAS1 will result in what kind of inflation ___________________. II. Answer the following questions by filling in the blanks. 1. The three macroeconomic markets are _______________, _____________ & ____________. 2. Points on AD represent equilibrium in ___________________________________ market(s).
3. Points in AS represent equilibrium in ____________________________________market(s). 4. AD/As equilibrium represents equilibrium in ____________________________ market(s). 5. If actual GDP is less than potential GDP, the policy maker should adopt a(n) _____________ policy. 6.

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## This note was uploaded on 04/04/2012 for the course ECON 205 taught by Professor Kamrany during the Spring '07 term at USC.

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Assign6-revised - University of Southern California...

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