ECN 60 T5 Homework Assignment-10-8. Assume that the position of a nation’s aggregate demand curve

10-8. Assume that the position of a nation’s aggregate demand curve has
not changed, but the long-run equilibrium price level has declined.
Other things being equal, which of the following factors might account
for this event? (See page 219.)a. An increase in labor
productivityb. A decrease in the capital stockc. A decrease in the
quantity of money in circulationd. The discovery of new mineral
resources used to produce various goodse. A technological improvement10-10.
Assume that the economy is in long-run equilibrium with complete
information and that input prices adjust rapidly to changes in the
prices of goods and services. If there is a rise in the price level
induced by an increase in aggregate demand, what happens to real GDP?
(See page 219.)10-12. Explain whether each of the
following events would cause a movement along or a shift in the position
of the LRAS curve, other things being equal. In each case, explain the
direction of the movement along the curve or shift in its position. (See
page 212.)a. Last year, businesses invested in new capital
equipment, so this year the nation’s capital stock is higher than it was
last year.b. There has been an 8 percent increase in the quantity of
money in circulation that has shifted the AD curve.c. A hurricane of
unprecedented strength has damaged oil rigs, factories, and ports all
along the nation’s coast.d. Inflation has occurred during the past year
as a result of rightward shifts of the AD curve.10-16.
For each question, suppose that the economy begins at the long-run
equilibrium point A in the diagram below. Identify which of the other
points on the diagram—points B, C, D, or E—could represent a new
long-run equilibrium after the described events take place and move the
economy away from point A. (See page 219.)a. Significant
productivity improvements occur, and the quantity of money in
circulation increases.b. No new capital investment takes place, and a
fraction of the existing capital stock depreciates and becomes unusable.
At the same time, thegovernment imposes a large tax increase on the
nation’s households.c. More efficient techniques for producing goods and
services.11-2. Consider a country with an economic
structure consistent with the assumptions of the classical model.
Suppose that businesses in this nation suddenly anticipate higher future
profitability from investments they undertake today. Explain whether or
how this could affect the following (see page 232):a. The current
equilibrium interest rateb. Current equilibrium real GDPc. Current
equilibrium employmentd. Current equilibrium savinge. Future equilibrium
real GDP (see Chapter 9)11-4. Suppose that the Keynesian
short-run aggregate supply curve is applicable for a nation’s economy.
Use appropriate diagrams to assist in answering the following questions
(see page 236):a. What are two factors that can cause the nation’s
real GDP to increase in the short run?b. What are two factors that can
cause the nation’s real GDP to increase in the long run?11-6.
Suppose that there is a temporary, but significant, increase in oil
prices in an economy with an upward-sloping SRAS curve. If policymakers
wish to prevent the equilibrium price level from changing in response to
the oil price increase, should they increase or decrease the quantity
of money in circulation? Why? (See page 242.)11-7. As in
Problem 11-6, suppose that there is a temporary, but significant,
increase in oil prices in an economy with an upward-sloping SRAS curve.
In this case, however, suppose that policymakers wish to prevent
equilibrium real GDP from changing in response to the oil price
increase. Should they increase or decrease the quantity of money in
circulation? Why? (See page 240.)11-8. Based on your answers to
Problems 11-6 and 11-7, can policymakers stabilize both the price level
and real GDP simultaneously in response to a short-lived but sudden rise
in oil prices? Explain briefly. (See pages 240–242.)11-10.
Between early 2008 and the beginning of 2009, a gradual stock-market
downturn and plummeting home prices generated a substantial reduction in
U.S. household wealth that induced most U.S. residents to reduce their
planned real spending at any given price level. Explain, from a
short-run Keynesian perspective, the predicted effects of this event on
the equilibrium U.S. price level and equilibrium U.S. real GDP. Be sure
to discuss the spending gap that the Keynesian model indicateswould
result in the short run. (See page 240.)11-12. Consider
an open economy in which the aggregate supply curve slopes upward in the
short run. Firms in this nation do not import raw materials or any
other productive inputs from abroad, but foreign residents purchase many
of the nation’s goods and services. What is the most likely shortrun
effect on this nation’s economy if there is a significant downturn in
economic activity in other nations around the world? (See page 243.)