Author Question: How do the following affect the equilibrium price in a market? a. A leftward shift in demand b. ... (Read 144 times)

newyorker26

  • Hero Member
  • *****
  • Posts: 536
How do the following affect the equilibrium price in a market?
 
  a. A leftward shift in demand
  b. A rightward shift in supply
  c. A large rightward shift in demand and a small rightward shift in supply
  d. A large leftward shift in supply and a small leftward shift in demand

Question 2

In the Taylor rule, does the target for the federal funds rate respond differently for a recession caused by a decrease in aggregate demand and for a recession caused by a decrease in short-run aggregate supply? Explain whether there is or is not a
 
  difference in how the target for the federal funds rate changes.



gstein359

  • Sr. Member
  • ****
  • Posts: 293
Answer to Question 1

a. Everything else remaining unchanged, a leftward shift in demand will lower the equilibrium price in the market.
b. Everything else remaining unchanged, a rightward shift in supply will lower the equilibrium price in the market.
c. Both the demand and supply curves will shift to the right but the shift in the demand curve will be greater. This means that that equilibrium price is likely to increase.
d. Both the demand and supply curves will shift to the left but the shift in the supply curve is greater than the shift in the demand curve. This means that the equilibrium price is likely to increase.

Answer to Question 2

The target for the federal funds rate responds differently. The output gap is negative with both recessions, but the current inflation rate and the inflation gap differ. The decrease in short-run aggregate supply will increase current inflation and the inflation gap (current inflation rate minus the target inflation rate). The decrease in aggregate demand will decrease both current inflation and the inflation gap. The target for the federal funds rate will be higher for the recession caused by a decrease in short-run aggregate supply.



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question


 

Did you know?

It is believed that the Incas used anesthesia. Evidence supports the theory that shamans chewed cocoa leaves and drilled holes into the heads of patients (letting evil spirits escape), spitting into the wounds they made. The mixture of cocaine, saliva, and resin numbed the site enough to allow hours of drilling.

Did you know?

Children with strabismus (crossed eyes) can be treated. They are not able to outgrow this condition on their own, but with help, it can be more easily corrected at a younger age. It is important for infants to have eye examinations as early as possible in their development and then another at age 2 years.

Did you know?

In 2012, nearly 24 milliion Americans, aged 12 and older, had abused an illicit drug, according to the National Institute on Drug Abuse (NIDA).

Did you know?

There are more nerve cells in one human brain than there are stars in the Milky Way.

Did you know?

Egg cells are about the size of a grain of sand. They are formed inside of a female's ovaries before she is even born.

For a complete list of videos, visit our video library