Immediately following the supply shock what happens

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Mathematical Excursions
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Chapter 4 / Exercise 25
Mathematical Excursions
Aufmann
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5. Immediately following the supply shock, what happens to unemployment? 7. How do firms respond to a decrease in input prices? 6. How will high unemployment in the economy affect both product prices and wages ffprices andwages are completely flexible? ..i, 1!.it" .:l.).I 'i: L:I.i "!•-; ; 'i,7,8. What effect wtl firms' response to the decrease in input prices have on SPAS?
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Mathematical Excursions
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Chapter 4 / Exercise 25
Mathematical Excursions
Aufmann
Expert Verified
1. The unemployment rate is 10 percent, and the inflation rate is 2 percent. The federal governmentcuts personal income taxes and increases its spending. The Federal Reserve (the Fed) buys bonds onthe open market.N Figure 5-5.1Expansionary Monetary and Fiscal Policyi'i1:,_1UJcoLUrrLUzml.uREAL GDPQUANTITY OF MONEYQUANTITY OFLOANABLE FUNDS. i(B) The price level t ,ÿ ÿ Explain,(C) Unemployment t ,ÿ ÿ Explain,(D) Interest rates t $ ÿ Explain.(E) Investment t t ÿ Explain.}"i-" :;iAdvanced Placement Economics Macroeconomlcs: Student Resource Manual © Council far Economic Education, New York, N.Y. 177
2. The unemployment rate is 6 percent, and the inflation rate is 9 percent. The federal governmentraises personal income taxes and cuts spending. The Fed sells bonds on the open market.Figure 5-5.2Contractionary Monetary and Fiscal Policy//.Jlu=JLU_.9.reo.LUÿZt-ZREAL GDPQUANTITY OF MONEYQUANTITY OFLOANABLE FUNDS 178 Advanced Placement Economies Macroeconomlcs" Student Resource Manual © Council. for Economic Education, NewYork, N.Y,,
.::ili,, il3. The unemployment rate is 6 percent, and the inflation rate is 5 percent. The federal governmentcuts personal income taxes and maintains current spending. The Fed sells bonds on the openmarket.zmrvREAL GDPQUANTITY OF MONEYQUANTITY OFLOANABLE FUNDS(A) ÿeal GDÿ I" ÿ. ÿ Explain.(B) The price level ? $ ÿ Explain,(C) Unemployment 1 ÿ. ÿ Explain.hi(D) Interest rates ÿ ÿ, ÿ Ex'-plam.(E) Investment ? ,ÿ ÿ Exÿplain.Advanced Placement Economics Macroeconomics: Student Resource Manual © Council for Economic Education, New York, N.Y.179lqigure 5-5.3Contractionary Monetary PoHCY and Expansionary Fiscal Policy/

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