Distinguish between two sources of inflation. Explain why steady inflation is likely to be less harmful to an economy than a situation which inflation rates vary alot.
"A rise in planned investment spending in an economy will lead to a rise in consumer spending." use the concept of the multiplier to verify this statement.
In constructing the short run aggregate supply curve, what is meant by the term "short-run"? How does this concept differ from the long run and what is the effect on industry of the difference in terms of planning? Explain the role of labor contracts on movement along the SRAS curve© BrainMass Inc. brainmass.com October 24, 2018, 8:16 pm ad1c9bdddf
We can analyze this problem with an AD-AS model (see attached file). The AS curve will be upward sloping because supplies are fixed. The AD curve shifts leftward due to the decrease in consumption induced by a decline in consumer confidence. This decline in aggregate demand creates an imbalance in the aggregate market. At the existing price level (which has NOT yet changed), producers are willing and able to sell $100 billion worth of real production. Buyers, however, are now willing and able to purchase less, something like $80 billion worth of real production. This creates economy-wide product market surpluses. Motivated by a build-up of inventories created by economy-wide product market surpluses, producers decrease production. In the short run they do so by reducing the employment of resources, especially labor.
Inflation that stems from demand is called demand-pull inflation. Inflation that results from increased costs of production is called cost-push inflation.
If an increase in demand occurs, businesses will increase output by making use of all resources causing profits to rise. Prices of the product will probably not rise because an organization could lose much of its share of the market to competitors who ...
Two sources of inflation, and how a decrease in aggregate demand results in a lower level of employment, given a fixed aggregate supply. How investment spending leads to a rise in consumer spending. The distinction between long and short run supply curves.
Inflation, Budget Constraint, Unemployment Rate
Use the concepts of gross and net investment to distinguish between an economy that has a rising stock of capital and one that has a falling stock of capital. "In 1933 net private domestic investment was minus $6 billion. This means that in that particular year the economy produced no capital goods at all." Do you agree? Why or why not? Explain: "Though net investment can be positive, negative, or zero, it is quite impossible for gross investment to be less than zero."
Briefly explain how the following would shift the IS function to the right:A change to lump-sum taxation (Specify whether increase or decrease is needed to shift IS curve to the right.), A change to government spending (Specify whether increase or decrease is needed to shift IS curve to the right.)
Explain briefly how a change to the following MS, MD, or P (ceteris paribus) would shift the LM function to the right. Include in your discussion whether the variable would have to increase or decrease to cause the rightward LM shift. Discuss which of these the FED exercises control over.
b.MD (money demand).
c.P (price index).
Suppose that private sector spending is highly sensitive to a change in interest rate. Compare the effectiveness of monetary and fiscal policy in terms of rising and lowering real GDP
Assume that a hypothetical economy with an MPC of .8 is experiencing severe recession. By how much would government spending have to increase to shift the aggregate demand curve rightward by $25 billion? How large a tax cut would be needed to achieve this same increase in aggregate demand? Why the difference? Determine one possible combination of government spending increases and tax decreases that would accomplish this same goal.View Full Posting Details