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Chapter 17: Q. 13 (page 395)

The real-business-cycle approach attributes even short-run increases in real GDP largely to aggregate supply shocks. Rightward shifts in aggregate supply tend to push down the equilibrium price level. How could the real-business-cycle perspective explain the low but persistent inflation that the United States experienced until 2007?

Short Answer

Expert verified

The reason would be that aggregate demand increases at a faster pace than the rise in aggregate supply. it's caused by process.

Step by step solution

01

Introduction

Short-run increases in real GDP largely to aggregate supply shocks, Rightward shifts in aggregate supply tend to knock down the equilibrium indicator. The rationale would be that aggregate demand increases at a faster pace than the increase in aggregate supply. it's caused byprocess.

02

Explanation

It is providing the important business cycles approach attributes even short run increases in real GDP largely to aggregate supply shocks. The rightward shift in aggregate supply tends to cut down the equilibrium index. So, the rationale would be that aggregate demand increases at a faster pace than the rise in aggregate supply. it's caused by process. Therefore, the worth level rose during in those years.

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Most popular questions from this chapter

Consider Figure 17-5, and suppose that the economy initially operates at point A, at which the inflation rate is 0percent and the unemployment rate is 6percent, which is the natural rate of unemployment. In the long run, will an increase in the inflation rate to 3percent result in the economy operating at point Bor at point F1? Explain your reasoning.


Both the traditional Keynesian theory discussed in a previous chapter and the new Keynesian theory considered in this chapter indicate that the short-run aggregate supply curve is horizontal.

a. In terms of their short-ran implications for the price level and real GDP , is there any difference between the two approaches?

b. In terms of their long-ran implications for the price level and real GDP, is there any difference between the two approaches?

Evaluate the following statement: "In an important sense, the term policy irrelevance proposition is misleading because even if the rational expectations hypothesis is valid, economic policy actions can have significant effects on real GDP and the unemployment rate."

Take a look at Figure 17-3. Explain whether the cyclical unemployment rate is positive, zero, or negative at point E2, after the shift in the aggregate demand curve from AD1to AD2. In addition, explain whether the cyclical unemployment rate is positive, zero, or negative at point E3the shift in the short-run aggregate supply curve from SRAS1to SRAS2.

Suppose that the government altered the computation of the unemployment rate by including people in the military as part of the labor force.

a. How would this affect the actual unemployment rate?

b. How would such a change affect estimates of the natural rate of unemployment?

c. If this computational change were made, would it in any way affect the logic of the short-run and long-run Phillips curve analysis and its implications for policy making? Why might the government wish to make such a change?
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