6. Macroeconomic equilibrium and the ranges of the aggregate supply curve The following graph shows the aggregate demand (AD₁) and aggregate supply (AS) curves for a hypothetical economy with Natural Real GDP of $11 trillion. The Simple Keynesian Model AD₁ 130 AD ₂ + New Eq 8.0 8.5 9.0 9.5 10.0 10.5 11.0 11.5 12.0 REAL GDP (Trillions of dollars) Suppose consumers and businesses become less optimistic about future economic conditions, causing aggregate demand to decrease by a total $1.5 trillion at each price level (after all multiplier effects have taken place). On the previous graph, use the green line (triangle symbol) to show the new aggregate demand curve (AD2). Be sure that AD2 is parallel to AD₁ (you can mouse over AD₁ to see its slope). Then use the black drop lines (cross symbol) to indicate the new macroeconomic equilibrium after the shift of aggregate demand. range of the aggregate supply curve, causing the equilibrium price The decrease in aggregate demand leads to a movement along the level to , and the equilibrium level of Real GDP to PRICE LEVEL 125 120 115 110 105 100 95 90 AS

6. Macroeconomic equilibrium and the ranges of the aggregate supply curve The following graph shows the aggregate demand (AD₁) and aggregate supply (AS) curves for a hypothetical economy with Natural Real GDP of $11 trillion. The Simple Keynesian Model AD₁ 130 AD ₂ + New Eq 8.0 8.5 9.0 9.5 10.0 10.5 11.0 11.5 12.0 REAL GDP (Trillions of dollars) Suppose consumers and businesses become less optimistic about future economic conditions, causing aggregate demand to decrease by a total $1.5 trillion at each price level (after all multiplier effects have taken place). On the previous graph, use the green line (triangle symbol) to show the new aggregate demand curve (AD2). Be sure that AD2 is parallel to AD₁ (you can mouse over AD₁ to see its slope). Then use the black drop lines (cross symbol) to indicate the new macroeconomic equilibrium after the shift of aggregate demand. range of the aggregate supply curve, causing the equilibrium price The decrease in aggregate demand leads to a movement along the level to , and the equilibrium level of Real GDP to PRICE LEVEL 125 120 115 110 105 100 95 90 AS

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5. Crowding out On the following graph, AD₁ represents the initial aggregate demand curve in a hypothetical economy, and SRAS represents the initial aggregate supply curve. The economy's natural real GDP is $12 billion. PRICE LEVEL 106 104 102 100 98 96 6 8 NRGDP AD 10 12 REAL GDP (Billions of dollars) 14 SRAS AD3 16 AD₂ ?
Worksheet 5: Aggregate Supply and Aggregate Demand Name: Complete the questions below. Be sure to show your work. Upload this worksheet to Moodle. Consider the following Aggregate Supply and Aggregate Demand curves. 1. P Draw 10 8 6 4 2 69% 20 40 G93 AS/AD LRAS 60 80 SRAS AD 100 120 GDP 3. Does this graph represent a Recessionary Gap, an Inflationary Gap, or an economy that is operating at its potential output? Explain. the graph. Pregate Demand?
Suppose the economy produces real GDP of $50 billion when unemplo plot the economy's long-run aggregate supply (LRAS) curve. PRICE LEVEL 132 128 124 120 116 112 108 104 100 0 10 20 30 40 50 REAL GDP (Billions of dollars) 60 70 80
2. A tabular approach to Keynesian equilibrium The following table shows some information on a hypothetical economy. The table lists real GDP, consumption (C), investment (I), government spending (G), net exports (X-M), and aggregate expenditures (AE). In this problem, assume that investment, government spending, and net exports are independent of the economy's real GDP level. X- Unplanned Inventory Real GDP C I G M AE Investment Direction of Real GDP and Employment $500 $300 $80 $60 $85 -$25 $600 $ $80 $60 $85 $600 $0 $700 $450 $80 $60 $85 $25 $800 $80 $600 $80 $60 $85 $60 $750 $50 $85 $825 $75 Using the numbers provided in the table, enter the correct numbers in the empty cells. Then, using the dropdown selection menus in the right-most column, indicate whether output will tend to increase, decrease, or remain in equilibrium at each level of real GDP in the table. (Note: The table uses negative numbers to indicate an unplanned inventory investment depletion and positive numbers to…
Consider a hypothetical closed economy in which there are no income taxes. If households spend $0.75 of each additional dollar they earn and save the remainder, the expenditure multiplier for this economy is The following graph shows the initial aggregate demand (AD) and short-run aggregate supply (SRAS) curves of this economy. Suppose that the economy is currently in a recession. Business firms are pessimistic about the future and do not respond to a fall in interest rates. In addition, all households are pessimistic about job prospects and desire to consume less and save more at all levels of income. As a result, personal consumption in this economy decreases by $1 billion. The reduction in personal consumption will lead to a decrease in aggregate demand by $ billion. Shift either the AD curve or the SRAS curve, or both, to show the new aggregate demand curve after the full impact of the multiplier process of the reduction in personal consumption has taken place. (? 100 90 SRAS AD 80…
The following graph depicts a macro equilibrium. Answer the questions based on the information in the graph (d) If the multiplier were equal to 4, how much additional investment would be needed to increase aggregate demand by the amount of the initial GDP gap?(e) Illustrate the changes in autonomous investment and induced consumption that occur in(d).(f) What happens to prices when aggregate demand increases by the amount of the initial GDP gap?
4 Exhibit 11-2 Aggregate demand and supply model 110 Price level 105 (CPI) 100 95 E NE Full employment. AS AD₁ AD 5.0 5.1 Real GDP (trillions of dollars per year) Suppose the economy in Exhibit 11-2 is in equilibrium at point E, and the marginal propensity to consume (MPC) is 0.9. Following Keynesian economics, the federal government can move the economy to full employment at point E₂ by increasing government spending by $_____ billion.
Worksheet 5: Aggregate Supply and Aggregate Demand Complete the questions below. Be sure to show your work. Upload this worksheet to Moodle. Consider the following Aggregate Supply and Aggregate Demand curves. 2. 3. D P 10 8 6 4 2 20 AS/AD 40 LRAS 60 80 140 SRAS AD Name: 100 120 GDP 4. Suppose the government increased spending (G). What would happen to Aggregate Demand? Draw the resulting curve, and mark a new equilibrium on the graph.
illustrates and how it is related to the aggregate demand curve. 3. Figure 11.8 shows the aggregate expenditure curve when the price level is 110. When the price level rises to 120, the AE curve shifts vertically downwards from AE, by $1 trillion. When the price level falls to 100, the AE curve shifts vertically upwards from AE, by $1 trillion. Figure 11.8: FIGURE 11.8 Short Answer Problem 10 (a) 8 Price level (GDP deflator) Aggregate planned expendit (trillions o FIGURE 11.9 Short Answer Problem 10 (b) 130 a. Draw two new AE curves in figure 11.8 for the price levels of 100 and 120. What are the equilibrium levels of aggregate expenditures for these two price levels? Label as 'b' the equilibrium point when the price level is 100 and 'c' as price level is 120. 120 b. Use figure 11.8 to obtain three points 'a', 'b' and 'c' on the aggregate demand curve. Plot these three points on figure 11.9. Assume that the aggregate demand curve is linear and draw the AD curve on figure 11.9. Figure…
7. The long-run aggregate supply curve and short-run adjustments Suppose an economy's short-run aggregate supply curve (SRAS), current equilibrium aggregate price level (P₁), and real GDP (Q1) are shown on the graph that follows. The economy currently has Natural Real GDP (QN) of $6 trillion. Use this information to place the orange long-run aggregate supply curve (LRAS, square symbols) in the correct position on the graph. 20 PRICE LEVEL 0 2 4 6 Q₁ REAL GDP (Trillions of dollars) 8 SRAS 10 LRAS
Price level (GDP price Index 2012-100) Pocential AS 130 GDP 120 110 100 90 AD 19.0 195 20.0 20.5 21.0 21.5 Real GDP (trillons of 2012 dollars) In the figure above, the economy is at an equilibrium with real GDP of $20 trillion and a price level of 110. As the economy moves toward its ultimate equilibrium, the curve shifts because O a. aggregate supply; leftward; the money wage rate rises O b. aggregate supply; rightward; the money wage rate falls O c. aggregate demand; leftward; the money wage rate rises d. potential GDP; leftward; the money wage rate falls O e. aggregate demand; rightward; the money wage rate falls
Chapter: A simple model of macroeconomics: Fiscal policy and Monetary Policy Q) Using the Aggregate supply and Aggregate Demand Model, examine the influence of government expenditure on investment in a nation. Use Jot Inc. Ltd a multinational construction company in which you are the Chief Exec of the firm that that is highly diversified and recieves funds to construct highways and other government funded projects. Also, explain the factors that cause the Aggregate Demand curve to be downward sloping left to right.answer the questions from below figure.