Exam 13: Policy Effects and Costs Shocks in the Asad Model

Monetary and Fiscal Policy Effects -Using the above graph, which output level is is considered potential output? Explain.

Could a high degree of monopoly power in an economy provide the explanation for inflation?

-Using the graph above, where does the economy reach capacity and how do you know?

Define cost-push inflation. Using an AS/AD diagram, illustrate how cost-push inflation affects the level of aggregate output and the price level in the economy. Suppose that the government uses expansionary fiscal policy to counter the effects of the cost-push inflation. Indicate on the diagram the impact of this policy on the price level and level of aggregate output.

Graphically illustrate and explain the aggregate supply (AS) curve.

Explain how expectations can affect the price level.

List some of the elements that have increased the aggregate supply curve during the 1960s and 1970s that relate to labor.

Assume that in the long run input prices fully adjust to changes in output prices. Use a diagram to indicate the effect of an expansionary fiscal policy on the price level and equilibrium level of output in the long run.

-Using the above graph assume that the economy is in equilibrium at an output level of $600 billion and a price level of 110. What would happen to the aggregate output level and the price level in th face of an oil embargo?