Macroeconomic Equilibrium and Stock Market Boom: Unit 8 Answers
Unit 8 Answers
1) Long-run Macroeconomic Equilibrium and Stock Market Boom
Let us assume the economy reaches its long-run macroeconomic equilibrium in 2020. When the economy is in the long run macroeconomic equilibrium, the stock market will also reach its boom. This will in turn lead to increases in stock prices more than expected, and the stock prices will stay high for some period.
Answer the following questions based on the scenarios of long macroeconomic equilibrium and consequent stock market boom.
a) Which curve will shift? Is it AS curve or AD curve? In which direction does the shift occur?
The aggregate demand curve will shift right
b) In the short-run, what will happen to the price level and output (real GDP)?
In the short run both the price level and real GDP will rise.
c) What will happen to the expected price level? What impact does this have on wage bargaining power of workers?
The expected price level rises and the bargains are struck for higher wages.
d) In the long-run, which curve will shift due to the change in price expectations created by the stock market boom? In which direct will it shift?
It will shift the short run aggregate supply curve to the left.
e) How does the new long-run macroeconomic equilibrium differ from the original equilibrium?
The price level is higher and real GDP is the same.
2) Studies indicate that net exports and net capital outflows tend to be equal.
a) Why are net exports and net capital outflows tend to be equal? How does an increase in the price level change interest rates?
The value of produced in any country is always equal to the value of reciprocal payments of some asset made by buyers in other countries to the producers. This value is also equal to the total amount currency traded in the foreign exchange market over that year, because the buyers in other countries trade in their assets to convert to equivalent amount in the country’s currency, and use this amount to pay for the export
1) Long-run Macroeconomic Equilibrium and Stock Market Boom
Let us assume the economy reaches its long-run macroeconomic equilibrium in 2020. When the economy is in the long run macroeconomic equilibrium, the stock market will also reach its boom. This will in turn lead to increases in stock prices more than expected, and the stock prices will stay high for some period.
Answer the following questions based on the scenarios of long macroeconomic equilibrium and consequent stock market boom.
a) Which curve will shift? Is it AS curve or AD curve? In which direction does the shift occur?
The aggregate demand curve will shift right
b) In the short-run, what will happen to the price level and output (real GDP)?
In the short run both the price level and real GDP will rise.
c) What will happen to the expected price level? What impact does this have on wage bargaining power of workers?
The expected price level rises and the bargains are struck for higher wages.
d) In the long-run, which curve will shift due to the change in price expectations created by the stock market boom? In which direct will it shift?
It will shift the short run aggregate supply curve to the left.
e) How does the new long-run macroeconomic equilibrium differ from the original equilibrium?
The price level is higher and real GDP is the same.
2) Studies indicate that net exports and net capital outflows tend to be equal.
a) Why are net exports and net capital outflows tend to be equal? How does an increase in the price level change interest rates?
The value of produced in any country is always equal to the value of reciprocal payments of some asset made by buyers in other countries to the producers. This value is also equal to the total amount currency traded in the foreign exchange market over that year, because the buyers in other countries trade in their assets to convert to equivalent amount in the country’s currency, and use this amount to pay for the export