Chapter 10: Q. 1FCT (page 226)
How could a return of the U.S. population growth rate to its previous level reduce the disinflationary effect of secular stagnation?
This has improved the nation's overall potential (GDP).
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Take a look at the panel (a) of Figure 10-6. In the absence of a change in aggregate demand, what effect does economic growth have on the price level over time, other things being equal? Why?
In Ciudad Barrios, El Salvador, the latest payments from relatives working in the United States have finally arrived. When the credit unions open for business, up to 150 people are already waiting in line. After receiving the funds their relatives have transmitted to these institutions, customers go off to outdoor markets to stock up on food or clothing or to appliance stores to purchase new refrigerators or televisions. Similar scenes occur throughout the developing world, as each year migrants working in higher-income, developed nations send around $200 billion of their earnings back to their relatives in less developed nations. Evidence indicates that the relatives, such as those in Ciudad Barrios, typically spend nearly all of the funds on current consumption.
a. Based on the information supplied, are developing countries' income inflows transmitted by migrant workers primarily affecting their economies' long-run aggregate supply curves or aggregate demand curves?
b. How are equilibrium price levels in nations that are recipients of large inflows of funds from migrants likely to be affected? Explain your reasoning.
Continuing from Problem suppose that the full-employment level of nominal GDP in the following year rises to trillion. The long-run equilibrium price level, however, remains unchanged. By how much (in real dollars) has the long-run aggregate supply curve shifted to the right in the following year? By how much, if any, has the aggregate demand curve shifted to the right? (Hint: The equilibrium price level can stay the same only if and shift rightward by the same amount.)
For each question, sัpose that the exonorm begins at the long-run equilibrium point in the diagram below. Identify which of the other points on the diagram-points , or -could represent a new long-run equilibrium after the described events take place and move the economy away from point .
a. Significant productivity improvements occur, and the quantity of money in circulation increases.
b. No new capital investment takes place, and a fraction of the existing capital stock depreciates and becomes unusable. At the same time, the government imposes a large tax increase on the nation's households.
c. More efficient techniques for producing goods and services are adopted throughout the economy at the same time that the government reduces its spending on goods and services.
Discuss the concept of long-run aggregate supply and describe the effect of economic growth on the long-run aggregate supply curve
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