Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. The inflation rate The size of the labor force The price level The quantity of physical capital Suppose the economy produces real GDP of $50 billion when unemployment is at its natural rate. Use the purple points (diamond symbol) to plot the economy's long-run aggregate supply (LRAS) curve on the graph. 132 128 LRAS 124 120 116 PRICE LEVEL 112 108 104 100 10 20 30 40 50 60 70 80 OUTPUT (Billions of dollars) Suppose the government passes a law that reduces unemployment benefits in a way that causes unemployed workers to seek out new jobs more quickly. The policy will cause the natural rate of unemployment to , which will: Not affect the long-run aggregate supply curve O Shift the long-run aggregate supply curve to the left O Shift the long-run aggregate supply curve to the rightIn the following table, determine how each event affects the position of the long-run aggregate supply (LRAS) curve. Direction of LRAS Curve Shift Many workers leave to pursue more lucrative careers in foreign economies. For environmental and safety reasons, the government requires that the country's nuclear power plants be permanently shut down. An investment tax credit increases the rate at which firms acquire machinery and equipment.For example, the mlsperceptlans theory asserts that changes in the price level can temporarily mislead rms about what is happening to their output prices. Consider a soybean farmer who expects a price level of 100 in the coming year. If the actual price level turns out to be 90, soybean prices will V , and if the farmer mistakenly assumes that the price of soybeans declined relative to other prices of goods and services, she will respond by V the quantity of soybeans supplied. If other producers in this economy mistake changes in the price level for changes in their relative prices, the unexpected decrease in the price level causes the quantity of output supplied to 'V' the natural level of output in the short run. Suppose the economy's short-run aggregate supply (AS) curve is given by the following equation: Quantity 69\" Output Supplied = Natural Level of Output + a X (Price LevelAdm; Price Levelgxpemd) The Greek letter or represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a = $2 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $2 billion. Suppose the natural level of output is $50 billion of real GDP and that people expect a price level of 100. On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105, and 1 1 0. C?) 125 -I- 120 115 AS 110 _ + EJI 105 + LRAS a -I 100 s Lu 9 E 95 so as an 75 illllllllll 010 20 30 4.0 so so 70 an 90 100 OUTPUT (Billions of dollars) The short-run quantity of output supplied by rms will rise above the natural level of output when the actual price level 'V the price level that people expected. The following graph shows an increase in aggregate demand (AD) in a hypothetical country. Specifically, aggregate demand shifts to the right from AD, to AD2, causing the quantity of output demanded to rise at all price levels. For example, at a price level of 140, output is now $400 billion, where previously it was $300 billion. (?) 170 160 150 140 130 PRICE LEVEL 120 AD 2 10 AD 100 100 200 300 500 600 700 800 OUTPUT (Billions of dollars) The following table lists several determinants of aggregate demand. Complete the table by indicating the change in each determinant necessary to increase aggregate demand. Change Needed to Increase AD Wealth Taxes Interest rates The value of the domestic currency relative to the foreign currencySuppose you've just inherited $10,000 from a relative. You're trying to decide whether to put the $10,000 in a non-interest-bearing account so that you can use it whenever you want {that is, hold it as money) or to use it to buy a U.S. Treasury bond. The opportunity cost of holding the inheritance as money depends on the interest rate on the bond. For each of the interest rates in the Following table, compute the opportunity cost of hoiding the $10,000 as money. Interest Rate on Government Bond Opportunity Cost (Percent) (Boilers per year) 5 ' 3 7 What does the previous analysis suggest about the market for money? 0 The quantity of money demanded increases as the interest rate falls. 0 The supply of money is independent of the interest rate. 0 The quantity of money demanded decreases as the interest rate falls