e. Assuming there is no government intervention and all prices are eventually flexible, what will happen in the long run? **Be specific** and talk about how your **entire diagram** in **part a** would change.f. Show this change on your diagram in **part a**. Label the new point as **point C**. **Transcription of Text with Diagram Explanation:**### Temporary Change in Oil Prices and Economic Impact**2.** A temporary change in the price of oil can affect an economy in many ways. Here, we will model a decrease in the price of oil using the aggregate demand-aggregate supply model. Our shock in this question will be: **the price of oil temporarily declines, holding all else constant.**Let's start by assuming the US was producing at the full-employment level of output (Yp) with an arbitrary price level (P) before the decline in oil prices.**a.** Represent the US economy at this point with an aggregate demand-aggregate supply graph. Label this initial equilibrium as **point A**.**b.** The price of oil decreases as mentioned above. Assuming this was the only change in the economy, show how this affects the short-run equilibrium in your diagram in part **a**. Label this new point as **point B**.**c.** According to your diagram, is this economy in an expansion or a recession? Explain.**d.** Is the economy experiencing stagflation? Why or why not?### Explanation of the Diagram:- The diagram mentioned would typically include: - **Aggregate Demand (AD) Curve**: Downward sloping, representing the demand for total goods and services in the economy at different price levels. - **Aggregate Supply (AS) Curve**: Upward sloping in the short run, representing the total goods and services that firms are willing to produce at different price levels. - **Initial Equilibrium (Point A)**: The intersection of the initial AD and AS curves, indicating the full-employment level of output (Yp) and initial price level (P). - After the fall in oil prices, the **AS Curve** would shift right as production costs decrease, leading to a new equilibrium at **Point B**. - **Point B**: This represents the new short-run equilibrium with a potentially higher output and lower price level due to the decrease in oil prices, assuming all other factors remain constant.

We will solve the first three subparts only. Please resubmit the question with any other parts you'd…

2. A temporary change in the price of oil can affect an economy in many ways. Here we will model a decrease in the price of oil using the aggregate demand-aggregate supply model. Our shock in this question will be: the price of oil temporarily declines, holding all else constant. Let's start with assuming the US was producing at the full- employment level of output (Yp) with an arbitrary price level (P) before the decline in oil prices. a. Represent the US economy at this point with an aggregate demand-aggregate supply graph. Label this initial equilibrium as point A.

2. A temporary change in the price of oil can affect an economy in many ways. Here we will model a decrease in the price of oil using the aggregate demand-aggregate supply model. Our shock in this question will be: the price of oil temporarily declines, holding all else constant. Let's start with assuming the US was producing at the full- employment level of output (Yp) with an arbitrary price level (P) before the decline in oil prices. a. Represent the US economy at this point with an aggregate demand-aggregate supply graph. Label this initial equilibrium as point A.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Refer to the data in the table given below. Suppose that the present equilibrium price level and level of real GDP are 100 and $280, and that data set A represents the relevant aggregate supply schedule for the economy. (A) Price Level 100 100 100 100 Real GDP 205 230 255 280 (B) Price Level 110 100 95 90 Real GDP 230 230 230 230 (C) Price Level 110 100 95 90 Real GDP 280 255 230 205 a. What must be the current amount of real output demanded at the 100 price level? Real output demanded = $ b. If the amount of output demanded declines by $25 at the 100 price level shown in A, what will be the new equilibrium real GDP? The new equilibrium level of real GDP = $ In business cycle terminology, what would economists call this change in real GDP? (Click to select)
On the graph, label your starting AD line as AD 2019. Draw a new AD line showing the change to AD due to the pandemic. Label your starting SRAS line as SRAS 2019. Draw a new SRAS line showing the change to supply due to the pandemic.Label the new short-run equilibrium RGDP and Price Level. Does output (i.e. RGDP) increase or decrease in your model? Does the price level increase or decrease in your model? According to the AD-AS model when RGDP falls the unemployment rises and vice versa. Does your graph indicate an increase or decrease in the unemployment rate
Why does the short-run aggregate supply curve slope upward to the right? If the prices of both (a) resources and (b) goods and services increased proportionally (by the same percentage), would business firms be willing to expand output? Why or why not?
Suppose that the coronavirus pandemic (COVID 19) in 2020 has resulted in a leftward shift of the aggregate demand curve (it has also shifted the short-run aggregate supply to the left, but let’s ignore this effect here for simplification). A. Use the aggregate-demand/aggregate-supply model to show the effects on output and the price level/inflation in both the short run and long run (assume that the short-run aggregate supply curve is upward sloping). B. Show the adjustment process of the economy from the short run to the long run. C. What is the effect on unemployment in short run and long run? D. Can policymakers use monetary policy (and/or fiscal policy) to accommodate this shock? Describe what happens to the economy in response to this policy action.
How does the increase in U.S energy production and the subsequent reduction in the reliance on imported oil affect the U.S Aggregate demand and/or short run aggregate supply curve(s) ? Examine the potential impact on real GDP and the average price level in the U.S.
2) Use the table above to answer the following questions.a) What is the value of real GDP and price level at the long run macroeconomic equilibrium?b) What is the value of real GDP and price level at the short run macroeconomic equilibrium?c) Is the short-run macroeconomic equilibrium a full-employment equilibrium, below full-employment equilibrium, or above full-employment equilibrium?d) How will this economy return to its long run equilibrium? Explain using self-correctingmechanism.
31) Use the dynamic model of aggregate demand and supply to illustrate a situation where aggregate demand and short-run aggregate supply are both increasing from year 1 to year 2, resulting in a higher price level and higher level of real GDP at macroeconomic equilibrium in year 2. 32) Hurricane Katrina resulted in a decline in oil production infrastructure along the gulf coast. As a result there was an unexpected decline in oil and natural gas supplies in 2005. Suppose that this caused an increase in the price level and a decline in real GDP in 2006. Also assume that potential real GDP continued to grow due to other factors. You can assume the aggregate demand curve did not change. Show the macroeconomic equilibrium for 2005 and 2006 using the dynamic aggregate supply and aggregate demand model. 1
Which economic condition would most likely be experienced if aggregate supply shifts from AS to AS2 as in the graph below?
on Indicate whether the following factor will affect aggregate demand (AD) or aggregate supply (AS) and whether the effect would be an increase or a decrease. Then indicate what will happen to the price level and the level of Real GDP and what type of equilibrium will result assuming that the economy is initially in long-run equilibrium. a) A decrease in the nominal wage rate. b) A decrease in exports. c) A decrease in the exchange rate. d) The discovery of vast new oil field in AD no effect decrease + increase no effect AS increase no effect increase increase decrease decrease decrease Real GDP increase decrease increase increase Equilibrium recessionary gap ⇒ inflationary gap inflationary gap inflationary gap AP ? Q Fir
Which of the following would cause the Aggregate Supply curve to move from AS to AS2 in the graph below? A) A general increase in energy and labor cost for businesses. B) A general decrease in labor cost for businesses. C) An increase in productivity. D) A federal government increase in spending.
In the AD-AS model with an upward-sloping AS-curve, a decrease in oil prices will Multiple Choice O O O increase prices and output in the long run decrease prices and increase output in the short run increase prices and decrease output in the long run decrease prices and output in the short run decrease prices but have no effect on output in the short run