1. Look at the figure 1. If the economy is in equilibrium at E and the government does not intervene, the result will likely be a shift of: Price level P2 P1 LRAS YP Y1 Figure 1 SRAS 2 SRAS 1 AD1 Real GDP

1. Look at the figure 1. If the economy is in equilibrium at E and the government does not intervene, the result will likely be a shift of: Price level P2 P1 LRAS YP Y1 Figure 1 SRAS 2 SRAS 1 AD1 Real GDP

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

1. Look at the figure. If the economy is in equilibrium at E and the government does not intervene, the result will likely
be a shift of:
Price
level
P2
g9
P1
LRAS
YP
Y1
Figure 1
SRAS 2
SRAS 1
AD1
Real GDP

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A The old price level still remains unchanged. Which of the below graphs is the correct depiction of the change in the previous two questions? P P (b) (a) P AS AS1 ASASO P P YB YA (c) P Y P YC➡YD Y (d) P AD1 ADO ADO AD YF YE Y YG YH Y - B Which points (or what distance) demonstrate the disequilibrium between the expenditure and output on the graph you chose? C Now the markets suggest a new price level at which output will equal expenditure. Graph an AS/AD and in it show with an arrow how the real balances effect, the interest rate effect, and the foreign effect will adjust the price level to match expenditure to output. D Now on a separate graph show how the worker cost effect will drive firms to hire or fire workers so that their output matches the expenditure.