3. Using the Aggregate Demand / Aggregate Supply framework, determine both i) the short run effect on the price level and real output and ii) the long run effect on the price level and real output iii) the total effect of the policy on the price level and real output for each of the following events (that is, do both parts (i) through (iii) for each of a. through e.): a. Consumer confidence in the economic outlook increases. b. Government spending on Medicare payments for patient medical care decreases. c. Workers obtain large nominal wage increases. d. A new gasoline engine modification improves fuel economy by 25%.

3. Using the Aggregate Demand / Aggregate Supply framework, determine both i) the short run effect on the price level and real output and ii) the long run effect on the price level and real output iii) the total effect of the policy on the price level and real output for each of the following events (that is, do both parts (i) through (iii) for each of a. through e.): a. Consumer confidence in the economic outlook increases. b. Government spending on Medicare payments for patient medical care decreases. c. Workers obtain large nominal wage increases. d. A new gasoline engine modification improves fuel economy by 25%.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter23: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 3PA

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Question

3. Using the Aggregate Demand / Aggregate Supply framework, determine both
i) the short run effect on the price level and real output and
ii) the long run effect on the price level and real output
iii) the total effect of the policy on the price level and real output
for each of the following events (that is, do both parts (i) through (iii) for each of a. through e.):
a. Consumer confidence in the economic outlook increases.
b. Government spending on Medicare payments for patient medical care decreases.
c. Workers obtain large nominal wage increases.
d. A new gasoline engine modification improves fuel economy by 25%.

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E1
The figure below shows equilibrium in an aggregate demand-aggregate supply model. In this figure, the shift from AS to AS' is likely to occur when: Figure 10.3 Price level AS P1 P2 Aggregate demand Real GDP Y, V2 a. the aggregate demand curve intersects the short-run aggregate supply curve at the potential output. O b. the actual output is more than the potential output. c. the actual price level is higher than expected. d. the actual price level is lower than expected. e. the unemployment rate is lower than the natural rate.
3. Because of the slope of the aggregate demand curve, we can say that A) a decrease in the price level leads to a lower level of real GDP demanded. B) an increase in the price level leads to no change in the level of real GDP demanded. C) a decrease in the price level leads to a higher level of real GDP demanded. D) an increase in the price level leads to a higher level of real GDP demanded. 4. Which of the following best describes the "wealth effect"? A) When the price level falls, the real value of household wealth falls. B) When the price level falls, the nominal value of household wealth falls. C) When the price level falls, the nominal value of household wealth rises. D) When the price level falls, the real value of household wealth rises.
ans ences rations If in Year 1 the price level was 100 and real GDP was $20 trillion and in Year 2 the price level was 105 and real GDP was $21 billion, then the predominant change that occured in Year 2 was OA a decrease in aggregate demand. B. an increase (shift to the right) in short-run aggregate supply. OC. a decrease (shift to the left) in short-run aggregate supply OD. an increase in aggregate demand.
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