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"With the economy in recession, the government has decided to increase government spending. "
Explain, and illustrate(draw a graph), how monetary or fiscal policy would move the aggregate demand curve.
Give five explanations for the trade-off between unemployment and inflation in the short and long run.
So let's say that this European Central Bank, the European Central Bank expects the natural unemployment rate to be 6 percent, and the actual unemployment rate is 5.5 percent.
B.) Assuming the expectation is the actual natural unemployment rate (5.5%), then if the government decides to increase government spending, please briefly explain and use the Phillips curve to illustrate.
So let's say that this European Central Bank, the European Central Bank expects the natural unemployment rate to be 6 percent, and the actual unemployment rate is 5.5 percent.
A.) Use the Phillips curve illustration to determine what happens to inflation and unemployment over a long period of time.
You are provided with the following demand and cost information for a monopolist.
P=60-0.25 Q and TC=Q2+40Q+50 Where P is price, Q is quantity of the product and TC is total cost. Determine the profit maximizing level of output and prices.
= 4m, where m represents income. She has two options:
Option 1: to buy a share. If she is successful her income will be 700 Birr and if she is not
successful her income will be 100 Birr.
Option 2: to do nothing and keep on earning 400 Birr. Assuming that success and failure are
equally likely,
a) What would be her expected income if she buys the share?
b) What would be her expected utility of buying the share?
c) Would Martha buy the share? Why?
d) Is Martha risk averse, risk lover or risk neutral?
1. If the long-run Phillips curve shifts to the right, for any given rate of money growth and inflation the economy will have
a. higher unemployment and higher output.
b. higher unemployment and lower output.
c. lower unemployment and higher output.
d. lower unemployment and lower output.
1. According to the long-run Phillips curve, if the central bank increases the growth rate of the money supply,
a. inflation and unemployment both rise.
b. inflation rises and unemployment falls.
c. only employment rises.
d. only inflation rises.
1. Phillips found a negative relation between
a. output and unemployment.
b. output and employment.
c. inflation and output.
d. inflation and unemployment.
1. Which of the following properly describes the interest-rate effect?
a. A higher price level leads to higher money demand, higher money demand leads to higher interest rates, and a higher interest rate increases the quantity of goods and services demanded.
b. A higher price level leads to higher money demand, higher money demand leads to lower interest rates, and a lower interest rate reduces the quantity of goods and services demanded.
c. A lower price level leads to lower money demand, lower money demand leads to lower interest rates, and a lower interest rate reduces the quantity of goods and services demanded.
d. A lower price level leads to lower money demand, lower money demand leads to lower interest rates, and a lower interest rate increases the quantity of goods and services demanded.
