B56 QUESTIONS GO WITH CHART4. Assuming Aggregate Demand and Aggregate Supply are initially at ADo and ASo respectively, which of the following explains the adjustment towards long-run equilibrium depicted in Figure C? a) Unemployment (resulting from the short-run equilibrium being below LRAS) causes wages to decline, which increases AS till long-run equilibrium is attained at full employment level of income and a lower price level. b) Government spending is increased, increasing AD to a level sufficient to attain long-run equilibrium at full employment level of income and a higher price level. c) In attempting to produce beyond the economy's natural level of GDP, producers bid up wages and prices of other resources, causing the AS to decrease to the point where long-run equilibrium is restored. d) Taxes are increased reducing AD to a level consistent with long-run equilibrium.5. Assuming Aggregate Demand and Aggregate Supply are initially at ADo and ASo respectively, and AD1 and AS1 represent changes, which of the above graphs depict the economy's self-correcting mechanism at work? a) Figures A & B b) Figures A & C c) Figures C & D d) Figures B & D6. Assuming the original position of the AS curve is ASo, the problem in the economy depicted in Figure B is: a) an inflationary gap of 10 b) an inflationary gap of 5 c) a recessionary gap of 5 P level60504030-201006050403020100 10P level0+0 10Figure ALRAS20 30 40real GDP = QFigure CLRAS2030real GDP = Q40ASOAS1ADO50A SoAD1ADO5060504030201006050403020100P level0P level100 10Figure BLRAS20 30real GDP = QFigure DLRAS4020 30 40real GDP = QAS1A SoADo-H 150-AD1ASOADo50

When the labor force is fully employed, the economy is effectively using its resources, which promotes stability and growth. There could be a greater level of prices in the economy as a result of this rise in government spending. Prices may increase in response to inflationary pressures when demand for goods and services increases.Note : As per honor code policy, we are allowed to solve only one question at a time. Requesting you to please report rest of the question and mention specific questions for the solution. In this hypothetical situation, the government deliberately raises spending and adds more money to the economy via a variety of initiatives like public works projects and infrastructure improvements. By increasing demand for products and services generally, this deliberate fiscal policy seeks to affect aggregate demand, or AD as economists call it. The goal is to steer the economy in the direction of long-term equilibrium, which is defined by full employment and output at its greatest level.Option A ans option D are eliminated, as they are not following possibility in long term employment. Long-term equilibrium is ensured by more government expenditure since it raises aggregate demand and moves AD0 toward AD1.Option C also incorrect. Conclusion This strategy is consistent with macroeconomic tactics in the workplace that are meant to maximize employment and economic performance. It emphasizes the fine balance that policymakers attempt to strike between promoting economic activity and controlling the ensuing effects on price levels.Therefore, the correct answer is option 'b'The correct answer of question 4 is option b.

Answered: . Assuming Aggregate Demand and…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Publisher:NEWNAN

Chapter1: Making Economics Decisions

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B56 QUESTIONS GO WITH CHART

4. Assuming Aggregate Demand and Aggregate Supply are initially at ADo and ASo respectively, which of the following explains the adjustment towards long-run equilibrium depicted in Figure C?

		a) Unemployment (resulting from the short-run equilibrium being below LRAS) causes wages to decline, which increases AS till long-run equilibrium is attained at full employment level of income and a lower price level.
		b) Government spending is increased, increasing AD to a level sufficient to attain long-run equilibrium at full employment level of income and a higher price level.
		c) In attempting to produce beyond the economy's natural level of GDP, producers bid up wages and prices of other resources, causing the AS to decrease to the point where long-run equilibrium is restored.
		d) Taxes are increased reducing AD to a level consistent with long-run equilibrium.

5. Assuming Aggregate Demand and Aggregate Supply are initially at ADo and ASo respectively, and AD1 and AS1 represent changes, which of the above graphs depict the economy's self-correcting mechanism at work?

		a) Figures A & B
		b) Figures A & C
		c) Figures C & D
		d) Figures B & D

6. Assuming the original position of the AS curve is ASo, the problem in the economy depicted in Figure B is:

		a) an inflationary gap of 10
		b) an inflationary gap of 5
		c) a recessionary gap of 5

P level
60
50
40
30-
20
10
0
60
50
40
30
20
10
0 10
P level
0+
0 10
Figure A
LRAS
20 30 40
real GDP = Q
Figure C
LRAS
20
30
real GDP = Q
40
ASO
AS1
ADO
50
A So
AD1
ADO
50
60
50
40
30
20
10
0
60
50
40
30
20
10
0
P level
0
P level
10
0 10
Figure B
LRAS
20 30
real GDP = Q
Figure D
LRAS
40
20 30 40
real GDP = Q
AS1
A So
ADo
-H 1
50
-AD1
ASO
ADo
50

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