Let's solve each part step-by-step: --- ## 1. **Effects of Tripling the Money Growth Rate** **Question:** Assume the Federal Reserve triples the growth rate of the quantity of money in circulation. In the long run, this increase in money growth will affect which of the following? (Check all that apply) - □ The price level - □ The inflation rate - □ The level of technological knowledge - □ The size of the labor force **Explanation:** - According to the quantity theory of money, increasing the money supply growth rate increases the inflation rate and price level in the long run, but does **not** affect real variables like technological knowledge or labor force size. - **Price Level:** Increases (money is less valuable, so prices rise). - **Inflation Rate:** Increases (rate at which prices rise is higher). - **Technological Knowledge:** No effect (determined by other factors). - **Labor Force Size:** No effect (determined by population/demographics). **Final Answers:** - ☑ The price level - ☑ The inflation rate - ☐ The level of technological knowledge - ☐ The size of the labor force --- ## 2. **Plotting LRAS Curve** **Question:** Suppose when unemployment is at its natural rate the economy produces a level of real GDP equal to $60 billion. **Plot the LRAS curve.** **Explanation:** - The LRAS (Long-Run Aggregate Supply) curve is **vertical** at the potential output, which is $60 billion. - This vertical line shows that in the long run, output is determined by resources, technology, and institutions—not by the price level. **How to plot:** - Draw a **vertical line** at Output = $60 billion. - It does **not** matter at which price level you place it, as LRAS is vertical for all price levels. **Graph:** - **X-axis:** Output (Billions of dollars), mark at $60 billion - **Y-axis:** Price Level (no specific value needed) - Draw the LRAS at $60 billion --- ## 3. **Effect of Minimum Wage Increase on LRAS** **Question:** Suppose the government passes a law that significantly increases the minimum wage. This change will: - ○ Rise, which will shift LRAS to the left - ○ Rise, which will shift LRAS to the right - ○ Fall, which will shift LRAS to the left - ○ Fall, which will shift LRAS to the right **Explanation:** - A higher minimum wage increases unemployment above the natural rate, **reducing potential output**. - This **shifts the LRAS curve to the left**, as the economy now produces **less** at the natural rate. **Final Answer:** - ○ Rise, which will shift the long-run aggregate supply curve to the left --- ## 4. **Table: LRAS Curve Shift Events** | Event | Direction of LRAS Curve Shift | |---------------------------------------------------------------------------------------------|:----------------------------:| | A government-sponsored training program increases the skill level of the workforce. | **Right** | | Many workers leave to pursue more lucrative careers in foreign economies. | **Left** | | This economy’s primary source of foreign oil decides to cease exports for political reasons.| **Left** | **Explanation:** - **Training program:** Raises productivity, **shifts LRAS right**. - **Workers leave:** Lowers labor force, **shifts LRAS left**. - **Loss of oil:** Reduces key input, **shifts LRAS left**. --- ### **Summary Table** | Step | Question/Action | Explanation | Answer | |------|----------------|-------------|--------| | 1 | Money Growth Effects | Price level and inflation increase | Price level & inflation rate | | 2 | Plot LRAS | Vertical at $60B | Line at $60B | | 3 | Minimum Wage | LRAS shifts left | Rise, shift left | | 4 | Event Table | See above | Right, Left, Left | --- **If you need the exact placement of the LRAS line on the graph, place a vertical line at Output = 60 (billion dollars) for all price levels.**