What is the difference between the short run and the medium run in these two questions when there is an increase in gov't consumption? Also what is the difference between the natural level of GDP and GDP.
Homework Answers
(1) In short run, higher government consumption increases aggregate demand, shifting AD curve to right. Real GDP and price level increases, decreasing unemployment. So:
Natural level of GDP - No change
Price level - Increase
GDP - Increase
Investment - Increase (since output will increase)
Nominal interest rate - Increase (since higher investment will shifting investment curve rightward in savings-investment graph, increasing interest rate)
(2) In medium run, higher price level will decrease aggregate supply, shifting AS curve leftward until it intersects new AD curve at further higher price level, but restoring real GDP to original level. So:
Natural level of GDP - No change
Price level - Increase
GDP - No change
Investment - No change (since higher interest rate in short run will decrease investment)
Nominal interest rate - No change
Add Answer to:
What is the difference between the short run and the medium run
in these two questions...
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1.
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(Figure: Determining SRAS Shifts) If there are advances in
technology, the short-run aggregate supply curve will shift from
SRAS0 to _____ and the price level will shift to
_____.
SRAS1; P0
SRAS2; P2
SRAS2; P1
SRAS1; P1
2.
Simultaneous recession and deflation can be explained by:
a decrease in aggregate supply.
an increase in aggregate supply.
a decrease in aggregate demand.
an increase in aggregate demand.
3.
Which is a determinant of aggregate supply?
household expectations
prices of...
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6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output that firms supply can deviate from the natural level of output if the actual price level in the economy deviates from the expected price level. Several theories explain how this might happen. For example, the sticky-price theory asserts that the output prices of some goods and services adjust slowly to changes in the price level. Suppose firms announce the prices...
Why the aggregate supply curve slopes upward in the short run quantity of output that firms supply can deviate from the natural level of output if the actual price level in the economy devi om the expected price level. Several theories explain how this might happen or example, the sticky-price theory asserts that the output prices of some goods and services adjust slowhy irms announce the prices for their products in advance, based on an expected price level of poods...
1.
.
(Figure: Determining SRAS Shifts) If there are advances in
technology, the short-run aggregate supply curve will shift from
SRAS0 to _____ and the price level will shift to
_____.
SRAS1; P0
SRAS2; P2
SRAS2; P1
SRAS1; P1
2.
Simultaneous recession and deflation can be explained by:
a decrease in aggregate supply.
an increase in aggregate supply.
a decrease in aggregate demand.
an increase in aggregate demand.
3.
Which is a determinant of aggregate supply?
household expectations
prices of...
3. Assume that country J is in a situation of short and medium run equilibrium. Assume that the government of J wants to foster output without increasing public expenditures. i. Which policy should the govern ment adopt? [2p] ii. Explain the short-run effects of this policy on interest rate, investments and money supply. [4p] iii. Explain the medium-run effects of the policy on the price level and on the real money supply.[3p] iv. What happens to the nominal exchange rate...
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