How will things change in the AD-AS framework if a
change in the money supply is completely offset by a
change in velocity?
Graphically show each of the following:
a Continued inflation due to supply-side factors
b One-shot demand-induced inflation
c One-shot supply-induced inflation
3 Use the figure below to answer the following questions.
a The economy is at point A when there is a oneshot demand-induced inflation.Assuming no other changes in the economy, at what point will the economy settle (assuming the economy is self-regulating)? b The economy is at point A when it is faced with two adverse supply-side shocks. The Fed tries to counter these shocks by increasing aggregate demand.What path will the economy follow?
Consider the following: Two researchers, A and B, are
trying to determine whether eating fatty foods leads to
heart attacks. The researchers proceed differently.
Researcher A builds a model in which fatty foods may
first affect X in one’s body, and if X is affected, then Y
may be affected, and if Y is affected, then Z may be
affected. Finally, if Z is affected, the heart is affected,
and the individual has an increased probability of suffering a heart attack. Researcher B doesn’t proceed
in this step-by-step fashion. She conducts an experiment to see if people who eat many fatty foods have
more, fewer, or the same number of heart attacks as
people who eat few fatty foods. Which researcher’s
methods have more in common with the research
methodology implicit in the Keynesian transmission
mechanism? Which researcher’s methods have more in
common with the research methodology implicit in the
monetarist transmission mechanism? Explain your answer.