ECN 360 T5 Homework Assignment

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.)