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Chapter 10: Q.21 (page 230)

Take a look at the panel (b) of Figure 10-6. If the Federal Reserve seeks to prevent secular deflation from taking place as a consequence of economic growth, how should it change the quantity of money in circulation? How would this policy action prevent secular deflation?

Short Answer

Expert verified

An expansionary financial strategy of the Federal Reserve can forestall the common collapse resulting in the monetary development in the country.

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01

introduction

Any adjustment of the condition of creative innovation and the amount/nature of component inputs causes the LRAS bend to move to one side.

02

explanation

This infers that expanded ability or efficiency permits the economy to deliver labour and products at a more elevated level. As the AD stays unaltered, in the event that the cost level doesn't fall, there will be an overabundance of an unsold load of labour and products in the economy over the long haul. This is shown by EA in the diagram beneath.

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Most popular questions from this chapter

Suppose that the long-run aggregate supply curve is positioned at a real GDP level of $18trillion in base-year dollars, and the long-run equilibrium price level (in index number form) is 115 . What is the full-employment level of nominal GDP?

Suppose that during a given year, the quantity of U.S. real GDP that can be produced in the long run rises from 17.9trillion to18.0 trillion, measured in base year dollars. During the year, no change occurs in the various factors that influence aggregate demand. What will happen to the U.S. long-run equilibrium price level during this particular year?

Consider Figure 10-4. What are the three effects of decreases in the price level, and do these generate upward or downward movements along the economy's aggregate demand curve?

Continuing from Problem 10-2,suppose that the full-employment level of nominal GDP in the following year rises to 21.85trillion. 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 LRAS and AD shift rightward by the same amount.)

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?
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