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What is the full-employment level of nominal GDP?




10-2. Suppose that the long-run aggregate supply curve;is positioned at a real GDP level of $15 trillion in;base-year dollars, and the long-run equilibrium;price level (in index number form) is 115. What is;the full-employment level of nominal GDP?;10-4. Suppose that the position of a nations long-run;aggregate supply curve has not changed, but its;long-run equilibrium price level has increased.;Which of the following factors might account for;this event? (See page 219.);a. A rise in the value of the domestic currency;relative to other world currencies;b. An increase in the quantity of money in;circulation;c. An increase in the labor force participation rate;d. A decrease in taxes;e. A rise in real incomes of countries that are key;trading partners of this nation;f. Increased long-run economic growth;10-6. Suppose that during the past 3 years, equilibrium;real GDP in a country rose steadily, from $450;billion to $500 billion, but even though the position;of its aggregate demand curve remained;unchanged, its equilibrium price level steadily;declined, from 110 to 103. What could have;accounted for these outcomes, and what is the;term for the change in the price level experienced;by this country? (See page 219.);10-8. Assume that the position of a nations 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 productivity;b. A decrease in the capital stock;c. A decrease in the quantity of money in;circulation;d. The discovery of new mineral resources used to;produce various goods;e. A technological improvement;10-10. 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 nations 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 nations 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 diagrampoints B, C, D, or Ecould;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, the;government imposes a large tax increase on the;nations households.;c. More efficient techniques for producing goods;and services are adopted throughout the economy;at the same time that the government;reduces its spending on 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 rate;b. Current equilibrium real GDP;c. Current equilibrium employment;d. Current equilibrium saving;e. Future equilibrium real GDP (see Chapter 9);11-4. Suppose that the Keynesian short-run aggregate;supply curve is applicable for a nations economy.;Use appropriate diagrams to assist in answering;the following questions (see page 236);a. What are two factors that can cause the nations;real GDP to increase in the short run?;b. What are two factors that can cause the nations;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 240242.);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 indicates;would 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 nations;goods and services. What is the most likely shortrun;effect on this nations economy if there is a;significant downturn in economic activity in;other nations around the world? (See page 243.)


Paper#15563 | Written in 18-Jul-2015

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