Chapter+12+HW+questions - revised

Chapter 12 HW questions 2. Does Say’s Law seem more likely to hold in the short-run or in the long run? Explain your answer. 7. The table shows information on aggregate supply, aggregate demand and the price level for the imaginary country of Xurbia. Price Level Aggregate Demand Aggregate Supply 110 700 600 120 690 640 130 680 680 140 670 720 150 660 740 160 650 760 170 640 770 a. Plot the AS-AD diagram from the data shown. What is the equilibrium? b. Would you expect unemployment in this economy to be relatively high or low? Explain your answer. Would you be concerned about the prospect of a rising price level in this economy? Explain your answer. c. Imagine that as a result of a government tax cut, aggregate demand becomes higher by 50 at every price level. Identify the new equilibrium. d. How will the new equilibrium alter output, the price level, and employment? 10. In the economy of Robertville, aggregate demand, aggregate supply and price level are as shown in the table below. Price Lev Aggregate Demand Aggregate Supply 60 1,400 1,200 80 1,375 1,300 100 1,350 1,350 120 1,325 1,390 140 1,300 1,410 a. Plot the AS-AD diagram from the data shown. What is the equilibrium? b. Would you expect unemployment in this economy to be relatively high or low? Explain your answer. Would you have relatively strong or weak concerns about the prospect of a rising price level in this economy? Explain your answer. c. The productivity of the workers in Robertville fall, and so AS shifts to the left by 65 units. Identify the new equilibrium. d. How will the new equilibrium alter the original output, the price level, and employment? 15. What will happen to unemployment and the price level in each of the following situations? Use an AS- AD diagram to explain your answers. a. in an economy deep in recession, the government cuts taxes b. productivity rises c. in an economy near potential GDP, business investors fear that the economy is slowing down Taylor_ch_12_ch26 2/17/11 9:41 AM Page 153

d. 18. Using AS-AD diagrams, illustrate each of the following economic situations by showing the patterns and shifts of either AS or AD that could cause them to happen: a. a rise in the price level triggered by higher oil prices; b. a rise in inflation that happens four years in a row because government spending keeps increasing; c. foreign investors gain confidence and increase the level of investment in the U.S. economy; d. the economies of trading partners grow very slowly, leading to a decrease in exports to those countries e. output declines slightly but the price level falls a great deal. Taylor_ch_12_ch26 2/17/11 9:41 AM Page 154