Aggregate Models and Macroeconomic Policies
Introduction and Alignment
In this two-part assignment, you will look at different aspects of aggregate demand-aggregate supply.
In Part 1, you will explore the many integrated variables and relationships managers need to understand for the determination of income, output, interest rates, and the price level in the aggregate demand-aggregate supply (AD-AS) model of the economy. This model integrates spending decisions on real goods and services with the demand side of the economy and then incorporates price-level and supply-side changes.
In Part 2, you will examine how equilibrium interest rates affect managerial decisions because of their overall influence on the cost of borrowing for business and consumers. The Federal Reserve can significantly influence overall money demand through the use of open-market operations and setting reserve requirements. This exercise will explore this relationship from a graphical perspective.
Upon completion of this assignment, you should be able to:
Identify the major measures of macroeconomic activity.
Apply the aggregate expenditure model in business decision making.
Explain the relationship between aggregate demand and aggregate supply.
Evaluate how shifts in aggregate supply and demand curves affect business decisions.
Explain the importance of monetary policy, fiscal policy, and interest rates on business decision making.
Identify the major measures of macroeconomic activity.
Textbook: Economics for Managers
Many major issues are involved in implementing fiscal and monetary policy, such as the impact of macro environment changes on different firms and industries and the problems both managers and forecasters face in using various economic indicators to predict future economic changes. It is important to understand how these indicators affect the aggregate demand-aggregate supply model from a graphical perspective.
Interest rates are an important determinant of business investments and consumer spending. The Federal Reserve can significantly influence overall money demand and interest rates through the use of open market operations and setting reserve requirements. This exercise will explore this relationship using a graphical perspective.
Review Chapter 11 and Chapter 14 in Economics for Managers.
Evaluate whether each of the following statements is true or false. Explain your answer and provide supporting rationale.
The short-run aggregate supply (SAS) curve slopes upward because households spend more as their incomes increase.
The long-run aggregate supply curve can never shift.
Either a decrease in the nominal money supply by the Federal Reserve, all else held constant, or an increase in the price level, all else held constant, will shift the aggregate demand (AD) curve to the left.
The Keynesian portion of the short-run aggregate supply (SAS) curve would be relevant during a recessionary situation.
Stagflation occurs when the aggregate demand (AD) curve shifts out on the upward sloping portion of the short-run aggregate supply (SAS) curve.
Review Chapter 13 and Chapter 11 in Economics for Managers.
Evaluate whether each of the following statements is true or false. Explain your answer and provide supporting rationale, using graphs to support your answer. You can create graphs by hand and take pictures and upload them with your answers, or you may use Word or Excel, and upload the file created by these software packages.
If the real money demand is greater than the real money supply, interest rates must rise to reach equilibrium in the money market as institutions sell bonds to obtain more money.
The federal government’s control of the money supply, which influences interest rates, is the primary tool that policy makers use to impact the macro economy.
A decrease in the reserve requirement decreases the money supply because banks have fewer reserves.
The real money demand curve shows how households and businesses change their spending in response to changes in the interest rate.
Both an increase in the nominal money supply by the Federal Reserve and an increase in the price level will cause the real money supply curve to shift to the right.
Write a 1000-word paper that includes your answers to both Part 1 and Part 2 of the assignment.
You must use three outside sources in addition to your textbook; these sources may include scholarly sources, credible newspapers, trade journals, and/or websites. Be sure to use OCLS to find these sources.
Your entire assignment should be APA formatted.
When you have completed both Parts 1 and 2 of your assignment, save a copy for yourself and submit a copy to your instructor using the Dropbox by the end of the workshop. Remember to include your graphs.
This assignment is due by the end of the workshop.
Click here to access the Dropbox.
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