– please, i really need help with problem 4. i have a midtermDescriptionSolution downloadThe…

– please, i really need help with problem 4. i have a midtermDescriptionSolution downloadThe Questionplease, i really need help with problem 4. i have a midterm tomorrow, please i need to know whether i did it right or wrong.?NameECON 301 Y.Fan : HW #3 DUE: Wednesday, February 3rd, 2016Problem 1Aggregate supply shocks and the medium run: Consider an economy with output equal to the natural levelof output. Now suppose there is an increase in unemployment bene?ts.(a)Using the AD-AS model, show the e?ects of an increase in unemployment bene?ts on the position of theAD and AS curves in the short run and in the medium run. Describe clearly which is the shifter and whythere would be a movement along the other curve.(b)How will the increase in unemployment bene?ts a?ect output and the price level in the short run and in themedium run?(c)Does this a?ect the natural level of output and the natural unemployment rate?Page 1 of 11NameECON 301 Y.Fan : HW #3 DUE: Wednesday, February 3rd, 2016Problem 2Money Neutrality:(a)In what sense is money neutral? How is monetary policy useful if money is neutral? Include some graphs aspart of your answer.(b)Fiscal policy, like monetary policy, cannot change the natural level of output. Why then is monetary policyconsidered neutral but ?scal policy is not?(c)If neither ?scal nor monetary policy a?ect the natural level of output (and natural unemployment rate),what types of things would a?ect the natural levels? (think about things like technology, capital stock,savings…etc)Page 2 of 11NameECON 301 Y.Fan : HW #3 DUE: Wednesday, February 3rd, 2016Problem 3Consider now a positive Aggregate Demand shock in detail now. (We covered a negative shock in detailin class) In parts (a)-(d) you?ll show how the shock a?ects an economy already in medium-run equilibriumand puts it into short-run equilibrium. From (e)-(h), you?ll transition the economy back to medium-runequilibrium. Use new graphs in each question.(a)Let?s start with an economy in medium-run equilibrium. Show the position of the AD-AS curves below anddescribe what the level of output is as well as the price level.(b)Then suppose ?rms are more optimistic about demand so they increase investments(b0 increases). We?llshow the AD side ?rst with 3 graphs. First show what happens in the AE model with a graph below.What?s happening with demand vs. the old equilibrium output Y ? Next, how does this connect to theIS-LM model? Which is the shifter, which has a movement along the curve? Why?Problem 3 continued on next page. . .Page 3 of 11NameECON 301 Y.Fan : HW #3 DUE: Wednesday, February 3rd, 2016(c)So, the IS shifts in part (b) along the LM. How does this change the AD curve? Why is this shift and not amovement along the curve? (no graph necessary here)(d)What happens to the AS curve in the short-run? Why does this not shift the AS? Draw now the short-runequilibrium now with the AD. Label relevant points.Problem 3 continued on next page. . .Page 4 of 11NameECON 301 Y.Fan : HW #3 DUE: Wednesday, February 3rd, 2016(e)Now we?ll transition back to the medium run. Based on the expected price level vs. the actual price level,describe what happens to the AS curve. Why is this a shift? Update with a new graph. (we?ll describe theAD movement in the next few steps)(f )How does the change in the price level of part (e) a?ect the Financial Market?s Liquidity-Preference Model?(how are interest rates changing?) Draw a graph below. How is the LM curve a?ected?Problem 3 continued on next page. . .Page 5 of 11NameECON 301 Y.Fan : HW #3 DUE: Wednesday, February 3rd, 2016(g)How does a change in the interest rates a?ect the Goods Market? Draw/explain the e?ect on the AE

 

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