Answer all questions.,,,
1. Explain how each of the following events would affect the aggregate demand curve.
a. Lower interest rates (5 points)
b. A decrease in net exports (5 points)
c. A decrease in the price level (5 points)
d. Slower income growth in other countries (5 points)
e. A decrease in imports (5 points)
2. Explain how each of the following events would affect the long-run aggregate supply curve.
a. A lower price level (5 points)
b. A decrease in the labor force (5 points)
c. A decrease in the quantity of capital goods (5 points)
d. Technological change (5 points)
e. An unexpected decrease in the price of an important raw material (5 points)
3. Starting from long-run equilibrium, use the basic aggregate demand and aggregate supply diagram to show what happens in both the long run and the short run when there is a decline in wealth. (10 points)
4. Beginning with long-run equilibrium, use the aggregate demand and aggregate supply model to illustrate what happens in the short run when the economy suffers a negative supply shock. (10 points)
5. Using the aggregate supply and demand model, illustrate what happens in the long run when the economy suffers a supply shock. Begin your analysis by assuming the economy has suffered the supply shock in the short run, but has not yet adjusted to it in the long run. (10 points)
6. Starting from long-run equilibrium, use the basic aggregate demand and aggregate supply diagram to show what happens in both the long run and the short run when there is an increase in wealth. (10 points)
7. Hurricane Katrina resulted in a decline in oil production infrastructure along the gulf coast. As a result there was an unexpected decline in oil and natural gas supplies in 2005. Suppose that this caused an increase in the price level and a decline in real GDP in 2006. Also assume that potential real GDP continued to grow due to other factors. You can assume the aggregate demand curve did not change. Show the macroeconomic equilibrium for 2005 and 2006 using the dynamic aggregate supply and aggregate demand model.
22. The evidence suggests that recent technological change (a) permanently increased the natural rate of unemployment. (b) is different from past technological change, in that it has no impact on productivity. (c) has increased productivity in the service sector only. (d) has increased productivity in the manufacturing sector only. (e) has increased the wage gap between skilled and unskilled workers. 23. When the unemployment rate is on the horizontal axis and the real wage is on the vertical axis, an increase in productivity will cause which of the following to occur? (a) The wage-setting and price-setting curves will both shift downward. (b) The wage-setting and price-setting curves will both shift upward. (c) The price-setting curve to shift downward, and no shift in the wage-setting curve. (d) The wage-setting curve to shift upward, and the price-setting curve to shift downward. (e) The wage-setting curve to shift downward, and the price-setting curve to shift upward. 24. The number of workers employed will not change as a result of an increase in productivity when which of the following occurs? (a) The AS curve shifts downward. (b) Output growth exceeds productivity growth. c) Productivity growth is equal to output growth. (d) The AD curve shifts to the right. (e) none of the above 25. An increase in productivity will cause which of the following according to the price-setting behavior of firms? (a) a reduction in prices set by firms (b) an increase in the real wage paid by firms (c) a reduction in the markup set by firms (d) all of the above (e) none of the above 26. Based on our understanding of the wage setting equation, which of the following will not cause a reduction in the nominal wage? (a) an increase in unemployment (b) a reduction in the expected price level (c) a reduction in expected productivity (d) all of the above (e) none of the above 27. Suppose workers' and firms' expectations of the price level and productivity are accurate. In this case, an increase in productivity will cause which of the following? (a) an increase in both the real wage and the natural rate of unemployment (b) a decrease in both the real wage and the natural rate of unemployment (c) an increase in the real wage and no change in the natural rate of unemployment (d) a decrease in the real wage and an increase in the natural rate of unemployment (e) none of the above 28. The empirical evidence suggests that periods of high productivity growth will cause which of the following in the short run? (a) higher markups (b) lower unemployment (c) constant real wages (d) greater equality in wages (e) none of the above 29. A major explanation for the decline in employment projected in textiles is (a) increases in income. (b) social problems in the U.S. (c) shifts in production toward low-wage countries. (d) inaccurate expectations about productivity growth. (e) inaccurate expectations about the price level. 30. Assume an economy experiences, for a given period, a 4% increase in output and a 2% increase in productivity. Given this information, we know that which of the following occurred for this economy during this period? (a) The unemployment rate increased during this period. (b) The unemployment rate decreased during this period. (c) The unemployment rate did not change during this period. (d) The effects on the unemployment rate are ambiguous. (e) none of the aboveOn January 1, 2020, Sun Company purchased the debt instruments of Silk Company with a face value of P5,000,000 bearing interest rate of 8% for P4,621,006 to yield at 10% interest per year. The bonds mature on January 1, 2025 and pay interest annually on December 30. On December 31, 2020, the fair value of the investment is P4,838,014, which is based on the prevailing market rate of 9%. If the company's business model has the objective of trading and making a profit from changes in the fair value of the securities, what amount of unrealized trading gain or loss should the company disclose in its December 31, 2020 profit or loss? If the company's business model has the objective of collecting all the contractual cash flows including interest and principal, at what amount should the investment be reported in the company's statement of financial position for the year ended December 31, 2020? a.P4,683,107 b.P4,838,014 c.P4,751,418 d.P4,621,006Policy rate, r LM" Output, Figure I Consider an economy described by Figure 1 in the text. a. Suppose the nominal policy interest rate is 5%. If expected inflation decreases from 3% to 2%, in order to keep the LM curve from shifting in Figure 1, what must the central bank do to the nominal policy rate of interest? b. If the expected rate of inflation were to decrease from 3% to 2%, does the IS & LM curve shift? c. If the risk premium on risky bonds increases from 5% to 6%, does the IS & M curve shift? d. What are the fiscal and monetary policy options that prevent an increase in the risk premium on risky bonds from decreasing the level of output? IS relation: Y = C(Y - T) + I(Y. r + x) + G LM relation: r = T Interpret the interest rate as the federal funds rate adjusted for expected inflation, the real policy interest rate of the Federal Reserve. Assume that the rate at which firms can borrow is much higher than the federal funds rate, equivalently that the premium, x, in the IS equation is high. e. Suppose that the government takes action to improve the solvency of the financial system. If the government's action is successful and banks become more willing to lend-both to one another and to nonfinancial firms-what is likely to happen to the premium? What will happen to the IS-LM diagram based on Figure 1? Can we consider financial policy as a kind of macroeconomic policy
