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QUESTION
Chapter 6 1. Show how to derive the AD curve from the IS-LM curves. Use this picture to show what happens to the AD when there is a tax increase. 2.
Chapter 6
Show more - 1. Show how to derive the AD curve from the IS-LM curves. Use this picture to show what happens to the AD when there is a tax increase.
- 2. What is meant by the "neutrality of money"?
- a. Under which AS curve is money neutral?
- b. Under which AS curve is money definitely not neutral?
- c. Using IS-LM-AD-AS curves, illustrate the case of money neutrality.
- 3. What is meant by 100% crowding out of fiscal policy?
- a. Under what AS curve is there 100% crowding out?
- b. Under which AS curve is there the LEAST amount of crowding out?
- c. Using IS-LM-AD-AS curves, illustrate the case of 100% crowding out.
- 4. What is meant by the velocity of money? Using FRED, obtain a graph of the velocity of money (M1). What has happened to velocity since the Great Recession?
- 1. What are the two basic building blocks that provide the underlying foundation for the AS curve?
- 2. Show how to derive the modern AS curve from its underlying foundations. What assumptions are you making in your description of the labor market? Are these realistic, why or why not?
- 3. Explain why an increase in money wages shifts the modern AS curve to the left.
- 4. Show how to derive the classical AS curve from its underlying foundations. What assumptions are you making in your description of the labor market? Are these realistic, why or why not?
- 5. What would make the classical AS curve shift to the right? To the left?
