11.3 THE FINAL EQUILIBRIUM LEARNING OBJECTIVE: Explain why the intersection of the AD and AS curves is an equilibrium point. 3.1 Illustrate each of the following situations with a graph showing AS and AD curves, and explain what happens to the equilibrium values of the price level and aggregate output: a. A decrease in G with the money supply held constant by the Fed b. A decrease in the price of oil with no change in govern- 1200 ment spending c. An increase in Z with no change in government spending d. An increase in the price of oil and a decrease in G

11.3 THE FINAL EQUILIBRIUM LEARNING OBJECTIVE: Explain why the intersection of the AD and AS curves is an equilibrium point. 3.1 Illustrate each of the following situations with a graph showing AS and AD curves, and explain what happens to the equilibrium values of the price level and aggregate output: a. A decrease in G with the money supply held constant by the Fed b. A decrease in the price of oil with no change in govern- 1200 ment spending c. An increase in Z with no change in government spending d. An increase in the price of oil and a decrease in G

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter22: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 1P

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Illustrate each of the following situations with a graphshowing AS and AD curves, and explain what happensto the equilibrium values of the price level and aggregateoutput:a. A decrease in G with the money supply held constant bythe Fedb. A decrease in the price of oil with no change ingovernment spendingc. An increase in Z with no change in governmentspendingd. An increase in the price of oil and a decrease in G
The United States is very large and very diverse in terms of economy. For example,someone would argue that rural areas may face a recessionary gap whereas othershave reached the full employment level. What would be your recommendations tothe US President who tries to combat recession in rural areas of Indiana based onthe self-regulating mechanism? [1] Discuss the tools that will help him achieve thelong run equilibrium and [2] show the impact graphically using the AD-AS Model.
Which of the following will NOT shift the ADTT curve? O a. A rise in consumer confidence O b. A rise in interest rates O c. A rise in government spending O d. A rise in exports
Which of the following will NOT shift the ADT curve? O a. A rise in government spending O b. A rise in exports Ос. A rise in interest rates O d. A rise in consumer confidence
Assume an economy operates in the intermediaterange of its aggregate supply curve. State thedirection of shift for the aggregate demandor aggregate supply curve for each of thefollowing changes in conditions. What is theeffect on the price level? On real GDP? Onemployment?a. The price of crude oil rises significantly.b. Spending on national defense doubles.c. The costs of imported goods increase.d. An improvement in technology raises laborproductivity.
Suppose that in 2011, Quarterville’s government cuts taxes. Show how this event will change equilibrium output and price level by shifting either the SRAS or AD curve.
In 2013, Prussia's aggregate demand curve was determined by the equation M + 1-4% A change in aggregate demand means that in 2014, Prussia's aggregate demand curve was determined by the equation Using this information, draw Prussia's old and new dynamic aggregate demand curves on the graph Which of the factors could have resulted in the change irn aggregate demand seen between 2013 and 2014? 13 AD 2013 an improvement in technology O an increase in imports O higher consumer confidence O a decrease in oil prices 12 AD 2014 10 8 5 4 3 2 4 -3 2 1 0 1 2 3 4 5 6 78 9 10 Real GDP growth rate
befoe y ee nd My a PRAS P feyr Output Reset In 6-2 we studied how unantioipated infation might affect the supply of goods and services in the economy and construced the shon-un aggregate supply ourve The interactive above shows how the SRAS curve changes at different levels of price fexibility. R is helptu in anowering the tulowing questions According to the SRAS curve, f prices are prefecty fexible O Unexpected changes in the price level wil have a large effect on output. O Unexpected changes in the price level will have no etfect on output O Unexpected changes in tme price level will have some etfect on output O None of these Inflation rate
Using AS and AD curves to illustrate, describe the effectsof the following events on the price level and on equilibriumGDP in the long run assuming that input prices fullyadjust to output prices after some lag:a. An increase occurs in the money supply above potentialGDPb. GDP is above potential GDP, and a decrease in governmentspending and in the money supply occursc. Starting with the economy at potential GDP, a war inthe Middle East pushes up energy prices temporarily.The Fed expands the money supply to accommodate theinflation.
Suppose that in 2011, the price of cotton, an input good, decreases in Microtania. Show how this event will change equilibrium output and price level by shifting either the SRAS or AD curve, and then answer the questions below. Did equilibrium output increase or decrease?Increase/Decrease Did equilibrium price increase or decrease?Increase/Decrease
Refer to Figure 34-5. An increase in taxes will a. shift aggregate demand from AD1 to AD3. O b. cause movement from point A to point B along AD1. c. have no effect on aggregate demand. O d. shift aggregate demand from AD1 to AD2. PRICE LEVEL Figure 34-5 기 11 AD 3 QUANTITY OF OUTPUT AD₁ AD₂
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