Macroeconomics Assignment Essay

Refer to the sets of the collect carry, short-run marrow supply, and long-run aggregate supply influences. Use the graphical records to explain the process and steps by which each of the future(a) economic scenarios willing com proceed the economy from maven long-run macroeconomic vestibular sense to another symmetry. Under each scenario, fatten up the short-run and long-run effects of the eludings in the aggregate accept and aggregate supply curves on the aggregate scathe level and aggregate yield (real GDP). Suppose the household wealth falloffs imputable to a decline in the stock market addition sets (See the set of graphs below and pay trouble to the 3-stage shifts in graphs).AnswerIn graph nonpareil the decline in the stock market asset equipment casualty causes the AD line to shift lotward, decreasing. The long-run equilibrium in the for the first time graph is the point where in all three of the lines (LRAS, S1, and D1) are connecting. With a reject GD P, the aggregated demand curve shifts to the left (D1 to D2) creating a overbold equilibrium point at a lower damage level. In the second graph it shows a higher(prenominal) supply with the plus in the SRAS (S1 to S2) curve. It will create a new long run equilibrium at a lower cost level. In the last graph it shows both the shift in the AS curve from AD1 to AD2 due to the decrease and it shows the increase in the SRAS curve from S1 to S2 due to higher supplies.It shows both the old and new equilibrium along the LRAS curve. The first one being higher than the other when the shifts to the curves happened it caused the equilibrium to shift down the LRAS curve because of the lower price level. Therefore, there is a wealth decrease due to a decline in the stock market asset price causes the lines to shift causing the price level to lower and the payoff to increase. b. Assume the politics lowers taxes, which increases the households expendable income. However, the government purcha ses (spending) remains the same. (See the set of graphs below and shifts in graphs)AnswerIn graph one the aggregate demand curve shifts from D1 to D2 as government lowers taxes and household disposable income increases. It shifts outward tothe redress because there is an increase because the quantity of take demanded for a given price level rises. The shift represents an expansion. The long run equilibrium is where the LRAS, AS and AD intersect with one another. The second graph the AS line shifts to the left from S1 to S2 because there is a decrease in aggregate supply caused by the increase in input prices. This creates deuce disparate equilibriums the second one is created from the shift in the AS curve. On the third graph it shows all the channels made to the economy through the AD/AS line shifts. The AS line shifts from S1 to S2 and the AD line from D1 to D2. The lower equilibrium shows when all three lines are intersecting. It is the contractionary insurance causing outpu t and the price level to decrease in the short run, but only the price level to decrease in the long run.The higher equilibrium shows discipline when all three lines are intersecting. It is the expansionary policy causing output and the price level to increase in the short run, but only the price level to increase in the long run. 2. Suppose the economy of a hypothetical country has reached its long-run macroeconomic equilibrium when each of the following aggregate demand reverses occurs. What kind of bed cover, inflationary or recessionary gap, will the economy face after the AD shock indicated by the shift in AD curves? What types of fiscal policy instruments will help move the economy back to the potential level of output (real GDP)? Give peculiar(prenominal) examples. a. At the long-run macroeconomic equilibrium, the stock market boom occurs and this increases the apprize of stocks households hold. (See the set of graphs below and shifts in graphs in the two-steps)AnswerA positivistic demand shock increases demand. Shown in graph one is the increase in the demand curve from SRAD1 to SRAD2 because of the positive demand shock. What an increase in demand does is cause more goods to be consumed at a higher price. This is wherefore the shift occurs to the right of the demand curve because there is more of a demand for the goods being produced. An inflationary gap is when there is a gap between the level of real GDP and the potential output essentially when the real GDP is greater than the potential. In the graphs because of the demand shock it shows an inflationary gap with the AS and AD curve intersecting on the right side of LRAS curve.In the second graph it shows that the government intervened in say to work on the aggregate demand curve back down to its superior place. Through the fiscal policy the government increased taxes to suck silver out of the economy. The negative side is that it can create a huffish economy and high unemployment level s. However, the government still has to use the fiscal policy in order to fine tuning the spending and taxation levels. b. The government increases its purchases (spending) due to natural disasters. (See the set of graphs below and shifts in graphs)AnswerTo polish a positive demand shock increases demand. The positive demand shock is occurring in the graphs due to the increase in spending because of the natural disaster. In graph one the SRAD shifts from SRAD1 to SRAD2, which is a sign of the positive demand shock. It kernel that more consumer goods are being consumed than produced. It causes the curve to shift to the right because of the increase in demand. This causes the government to take action in order to bring it back down to normal, stabilize it. The intervention is shown in graph two where the government stepped in and it brought the SRAD curve back down to its normal beat SRAD3. An inflationary gap is in these graphs because of the shifts to the SRAD curve.An inflationa ry gap is when there is a gap between the level of real GDP and the potential output basically when the real GDP is greater than the potential. The inflationary gap is where the AS and AD curve intersect on the right side of the LRAS. unremarkably during an inflationary gap the government increases taxes in order to suck coin out of the economy. This could also be done through the fiscal policy that dictates government-spending decreasing, which would also cause a decrease in the gold circulation. The death of the fiscal policy is to even out the business cycle. Assume the primaeval Bank reduces the money supply in the economy, which leads to an increase in the interest rates. (See the set of graphs below and shifts in graphs)AnswerA negative demand shock decreases demand. A negative demand shock ordinarily encounters little quantity of goods being consumed, and the consumers still within the market pay a lower price for the good. Usually during these timesthe economy wants to ignite the burn off through decreasing taxation-giving people more money to spend. In graph one we see the negative demand shock happening when the SRAD1 shifts to the SRAD2. This change causes a recessionary gap where the SRAD2 and the S1 intersect. A recessionary gap usually indicates that the economy is about to fall into a recession, which is defined by the lower real GDP (level of income) then the full-employment level.This puts downward pressure on set in the long run. Consumer spending is down and businesses are not reservation considerable profits. During a recession means they need to pump money into the economy through the government creating jobs and wages. This happens with the government intervention in graph two where the SRAD2 goes back to the SRAD3.ReferenceInvestopedia. (2014). Fiscal Policy. Retrieved from http//www.investopedia.com/articles/04/051904.asp Investopedia. (2014). Demand Shock. Retrieved from http//www.investopedia.com/terms/d/demandshock.asp Lib by Rittenberg and Timothy Tregarthen. (2014).