Economics 1022A/B Lecture Notes - Lecture 1: Real Interest Rate, Loanable Funds, Monetarism

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puceturtle178

9 Mar 2016

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ECON 1022A/B Full Course Notes

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Inflation is a process in which the price level is rising and money is losing value. Demand-pull inflation is inflation that results from an initial increase in aggregate demand. A demand-pull inflation can result from any influence that increases aggregate demand. In a demand-pull inflation, initially: aggregate demand increases, real gdp increases above potential gdp and the price level rises, the money wage rate rises, the price level rises further and real gdp decreases toward potential gdp. A one-time increase in aggregate demand raises the price level but does not always start a demand-pull inflation. For demand-pull inflation to occur, aggregate demand must persistently increase. The quantity of money must persistently grow at a rate that exceeds the growth rate of potential gdp. Initially, aggregate demand increases and the ad curve shifts rightward from ad0 to ad1. Real gdp increases to . 8 trillion and the price level rises from 110 to 113. The money wage rate begins to rise.

Related Questions

Refer to the table given below. Suppose that aggregate demand increases such that the amount of real output demanded rises by $15 billion at each price level.

Real Output Demanded (Original)	Price Level	Real Output Supplied
$500	112	$515
505	106	512
510	100	510
515	94	507
520	88	500

a.) By what percentage will the price level increase? _______ percent

b.) Will this inflation be demand-pull inflation or will it be cost-push inflation? (Click to select) Cost-push inflation or Demand-pull inflation

c.) If potential real GDP (that is, full-employment GDP) is $510 billion, what will be the size of the positive GDP gap after the change in aggregate demand? $ _______ billion

d.) If the government wants to use fiscal policy to counter the resulting inflation without changing tax rates, would it increase government spending or decrease it? (Click to select) (Increase or Decrease)

viridianmuskrat41

Demand-pull inflation is caused by

A. Wage increases that are higher than productivity growth.

B. High levels of aggregate demand in the short run.

C. An increase in aggregate supply that pulls up both output and the price level.

D. Recession.

E. An increase in the costs of production, which pulls prices higher.

sapphirejackal278

Refer to the data below.

Real Output Demanded, Billions	Price Level	Real Output Supplied, Billions
$506	108	513
508	104	512
510	100	510
512	96	507
514	92	502

a. What is the equilibrium level of output?

What is the equilibrium price level?

b. Suppose that aggregate demand increases such that the amount of real output demanded rises by $7 billion at each price level. Insert the new values for real output demanded in the table below.

Real Output Demanded, Billions	New Real Output Demanded, Billions	Price Level	Real Output Supplied, Billions
$506	______________	108	513
508	______________	104	512
510	______________	100	510
512	______________	96	507
514	______________	92	502

What is the new equilibrium level of output?

What is the new equilibrium price level?

By what percentage will the price level increase?

Will this inflation be demand-pull inflation or will it be cost-push inflation?

c. If potential real GDP (that is, full-employment GDP) is $510 billion, what will be the size of the positive GDP gap after the change in aggregate demand?

d. If the government wants to use fiscal policy to counter the resulting inflation without changing tax rates, would it increase government spending or decrease it?

blackmacaw69

Economics 1022A/B Lecture Notes - Lecture 1: Real Interest Rate, Loanable Funds, Monetarism

ECON 1022A/B Full Course Notes

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