19 Apr Unit 8 [204]Page 1 of 4Unit 8 Assignment: Aggregate Supply andAgg
Unit 8 [204]Page 1 of 4Unit 8 Assignment: Aggregate Supply andAggregate Demand (AS-AD) Model1. Your Assignment should have a cover sheet with the following information:● Your Name● Course Number● Section Number● Date2. You may submit your Assignment using the Unit 8 Assignment template.3. Your answers should follow APA formatting by being in double-spaced paragraph format, withcitations to your sources and, at the bottom of your last page, a list of references. Your answersshould also be in Standard English with correct spelling, punctuation, grammar, and style.4. Respond to the questions in a thorough manner, providing specific examples of concepts, topics,definitions, and other elements asked for in the questions. Your answers should be highlyorganized, logical, and focused.AssignmentThis Assignment deals with areas discussed under Aggregate Supply (AS) and Aggregate Demand(AD), and the basic concepts of open-economy macroeconomics.1) Long-run Macroeconomic Equilibrium and Stock Market BoomAssume the economy reaches its long-run macroeconomic equilibrium in 2020. When the economy isin the long-run macroeconomic equilibrium, the stock market will also reach its boom. This will in turnlead to increases in stock prices more than expected, and the stock prices will stay high for someperiod.Answer the following questions based on the scenarios of long macroeconomic equilibrium andconsequent stock market boom.a) Which curve will shift? Is it AS curve or AD curve? In which direction does the shift occur?b) In the short-run, what will happen to the price level and output (real GDP)?c) What will happen to the expected price level? What impact does this have on wagebargaining power of workers?d) In the long-run, which curve will shift due to the change in price expectations created by thestock market boom? In which direct will it shift?e) How does the new long-run macroeconomic equilibrium differ from the original equilibrium?Unit 8 [204]Page 2 of 42) Studies indicate that net exports and net capital outflows tend to be equal.a) Why do net exports and net capital outflows tend to be equal?b) How does a change in interest rates lead to changes in net exports?3) Assume there is a decrease in the demand for goods and services, which leads to a decrease inthe real GDP and eventually the economy into recession.a) When the economy enters recession due to a decline in demand, what will happen to theprice level?b) Assume there is no government intervention. What will ensure that the economy stilleventually gets back to the natural rate of output (real GDP)?4) A number macroeconomic variables decline during recessions. One of these variables is the GDP.a) What other variables, besides real GDP, tend to decline during recessions? Given thedefinition of real GDP and its components, explain the declines in these economic variableswhich are to be expected.b) Empirical studies indicate that the long-run trend in real GDP of the USA has an upwardtrend. How is this possible given business cycles and macroeconomic fluctuations? Whatfactors explain the upward trend in spite of the cycles?5) Assume there are short-run and long-run Macroeconomic Equilibriums in the economy.Refer to the AS and AD curves above to answer the following questions.a) What is the initial point of the long-run macroeconomic equilibrium? What are the equilibriumvalues? What does the appearance of the long-run aggregate-supply (LRAS) curve indicate?How does it differ from AS?Unit 8 [204]Page 3 of 4b) What are the factors that can shift short-run aggregate supply curve from AS1 to AS2? Whatdoes Point A represent in the graph? What does point B represent? Is it the short-run or longrun macroeconomic equilibrium? Explain.c) Assume aggregate demand (AD) is held constant, in the long-run, starting from point B, whatwill the economy likely experience? Will it reach the long equilibrium?Directions for Submitting Your AssignmentBefore you submit your Assignment, you should save your work on your computer in a location andwith a name that you will remember. Make sure your Assignment is in the appropriate templateprovided. Then, when you are ready, you may submit to the Dropbox.Unit 8 Assignment: Aggregate Supply and Aggregate Demand (ASAD) ModelPointsPossiblePointsEarnedContent and AnalysisProblem #1Identified the curve that shifts. (“a”)3Explained the effects on price and real GDP. (“b”) 3Explained the effects on the short-run expected price and wagebargaining. (“c”)3Explained long-run impacts on price expectations. (“d”) 3Identified new long-run equilibrium. (“e”) 3Problem #2Provided explanations for the relationships between net export and netcapital flows.3Explained the impacts of interest rates on net exports. 3Problem #3Identified the impacts of recessions on price. 3Described how the economy returns to natural rate of output. 3Problem #4Explained the variables that decline during recessions. 3Explained upward trend of real GDP under business cycles. 3Problem #5Correctly identified long-run macroeconomic equilibrium and its values.(“a”)3Explained the factors that shift AS. (“a”) 3Unit 8 [204]Page 4 of 4Unit 8 Assignment: Aggregate Supply and Aggregate Demand (ASAD) ModelPointsPossiblePointsEarnedIdentified short-run equilibrium at (“b”). 3Explained long-run change in short-run equilibrium. (“c”) 3Writing style, grammar, and APA formatting. 5Total 50
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