Chapter 10: Q. 3 LO (page 212)
Evaluate the meaning of long-run equilibrium for the economy as a whole and explain why economic growth can cause deflation
The deflation in an economy occurs when the total price in any country will fall and similarly if the total price rises, then the condition leads to inflation.
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Evaluate likely reasons for persistent inflation in recent decades
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.
How could a return of the U.S. population growth rate to its previous level reduce the disinflationary effect of secular stagnation?
Consider panel (a) of Figure 10-8. What type of variation in the position of the long-run aggregate supply curve could generate inflation-that is, an increase in the equilibrium price level? In a nation that generally experiences economic growth over the long run, would we anticipate that such a change in the position of the long-run aggregate supply curve could explain persistent inflation?
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.)
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