🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeTextbook Notes300,000CA170,000

EC140 Chapter Notes - Chapter 24: Nominal Rigidity, Longrun, Shortage

83 views8 pages
greenseal220
8 Sep 2016
School
WLU
Department
Economics
Course
EC140
Professor
Ken Jackson

For unlimited access to Textbook Notes, a Class+ subscription is required.

meghan78 and 39778 others unlocked
EC140 Full Course Notes
21
EC140 Full Course Notes
Verified Note
21 documents

Document Summary

Chapter 24 from the short run to the long run: the adjustment of factor prices. Technology and factor supplies are constant/ exogenous. Changes in real gdp are determined by the changes in y* Why it is studied determined by aggregate demand and aggregate supply. Ad and as shocks on real gdp adjusted to output gaps; real gdp eventually returns to. To see how output gaps cause factor prices to change and why real gdp tends to return to y* Potential gdp (y*) grows over the long run. To understand the nature of long-run economic growth. Potential output: total output that can be produced when all productive resources are fully employed. When actual output (y) diverges from its potential output (y*), the difference is called the output gap. These assumptions hold for all factors of production (i. e. labour, land, and capital equipment)

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Questions

1. For a closed economy, the IS curve describes short-run movements in an economy via which of the following?

a. Interest rate Investment Output
b. Interest rate Investment Output
c. Tax rate Consumption Output
d. Interest rate Investment Output
e. Tax rate Government expenditure Output

2. A key difference between the long run and short-run models is the assumption _____________ in the short run

a. of zero inflation
b. of perfect price flexibility
c. that unemployment always equals its natural rate
d. that the economy never deviates from its long-run equilibrium
e. of sticky inflation (inflexible prices)

3. If prices are sticky and the Fed raises the nominal interest rate (ceteris paribus), __________ and __________ in the short run.

a. the real interest rate remains constant; real output remains at potential
b. the real interest rate falls; short-run real output falls
c. the unemployment rate rises; short-run real output rises
d. the real interest rate rises; short-run real output falls
e. the real interest rate falls; current real output falls

4. According to the Phillips curve, if the current output is above potential output (a boom),

a. inflation rises.
b. inflation falls.
c. unemployment rises.
d. inflation is constant.
e. prices fall.

5. According to the Phillips curve, in general during a recession

a. inflation rises.
b. prices fall.
c. unemployment falls.
d. inflation is constant.
e. inflation falls.

1. If the price level doubles and the real output doesn't change, then nominal output also doubles.
2. Inflation makes it less difficult to interpret the information conveyed by prices.

3. Laissez-faire economists oppose government intervention in the market process.

4. Active demand management policies are based on the work of JohnMaynard Keynes.

5. In the AS/AD model, as the price level rises, the real value of assets increases, causing consumption to increase. This is one reason why the aggregate demand curve slopes down.

6. The short-run aggregate supply curve is upward sloping in part because increases in aggregate demand cause some firms to increase their price markups.

7. If productivity and wages both raises by 3 percent, then the short-run aggregate supply curve does not shift.

8. The long-run aggregate supply curve is vertical because all prices adjust in the long run.

9. If the economy is not in long-run equilibrium and other things are equal, then prices will eventually adjust to bring the economy to long-run equilibrium.

10. Most economists agree that it is possible for fiscal policy to fine-tune the economy.

During the depression, the U.S central bank, the Federal Reserve, enacted policies that increased the money supply by 6%.

1) What happens to the level of output and the price level in the shor- run and in the long-run?

2) Assume that the velocity is constant, what are the percentage change of output and price level in the short run and long run? (Hint: use quantity theory of money).

3) What happens to unemployment in the short-run and long-run? (Hint: Okun's law can be summaries in the following equation: in unemployment rate =

% in real GDP )

4) What happens to the real interest rate in the short-run and long-run? (Hint: Use the model of real interest rate in Chapter 3, to see what happens when output changes)