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…

Answered: . Assuming Aggregate Demand and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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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