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6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output supplied by firms can deviate from the natural level of output if the actual price level deviates from the expected price level in the economy. A number of theories explain reasons why this might happen. prices will For example, the misperceptions theory asserts that changes in the price level can temporarily mislead firms about what is happening to their output prices. Consider a soybean farmer who expects a price level of 100 in the coming year. If the actual price level turns out to be 90, soybean and it the farmer mistakenly assumes that the price of soybeans declined relative to other prices of goods and services, the quantity of soybeans supplied. If other producers in this economy mistake changes in the price level for changes in their relative prices, the unexpected decrease in the price level causes the quantity of output supplied to level of output in the short run. she will respond by the natural Suppose the economy's short-run aggregate supply (AS) curve is given by the following equation: Quantity of Output Supplied Natural Level of Output + ax (Price Level A-Price Level) The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a-$4 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $4 billion.. Suppose the natural level of output is $40 billion of real GDP and that people expect a price level of 100. On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange the segments (square symboo) to plot the economy's short-run appregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105, and 110.

6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output supplied by firms can deviate from the natural level of output if the actual price level deviates from the expected price level in the economy. A number of theories explain reasons why this might happen. prices will For example, the misperceptions theory asserts that changes in the price level can temporarily mislead firms about what is happening to their output prices. Consider a soybean farmer who expects a price level of 100 in the coming year. If the actual price level turns out to be 90, soybean and it the farmer mistakenly assumes that the price of soybeans declined relative to other prices of goods and services, the quantity of soybeans supplied. If other producers in this economy mistake changes in the price level for changes in their relative prices, the unexpected decrease in the price level causes the quantity of output supplied to level of output in the short run. she will respond by the natural Suppose the economy's short-run aggregate supply (AS) curve is given by the following equation: Quantity of Output Supplied Natural Level of Output + ax (Price Level A-Price Level) The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a-$4 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $4 billion.. Suppose the natural level of output is $40 billion of real GDP and that people expect a price level of 100. On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange the segments (square symboo) to plot the economy's short-run appregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105, and 110.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output supplied by firms can deviate from the natural level of output if the actual price level deviates from the expected price level in the economy. A number of theories explain reasons why this might happen. For example, the misperceptions theory asserts that changes in the price level can temporarily mislead firms about what is happening to their output prices. Consider a soybean farmer who expects a price level of 100 in the coming year. If the actual price level turns out to be 90, soybean prices will and if the farmer mistakenly assumes that the price of soybeans declined relative to other prices of goods and services, the quantity of soybeans supplied. If other producers in this economy mistake changes in the price level for changes in their relative prices, the unexpected decrease in the price level causes the quantity of output supplied to level of output in the short run. she will respond by the natural Suppose the economy's short-run aggregate supply (AS) curve is given by the following equation: Quantity of Output Supplied Natural Level of Output + ax (Price Level A-Price Level) The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a-$4 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $4 billion. Suppose the natural level of output is $40 billion of real GDP and that people expect a price level of 100. V On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange ine segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105, and 110. The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a-$4 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $4 billion. Suppose the natural level of output is $40 billion of real GDP and that people expect a price level of 100. On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange Ine segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105, and 110, ******* 125 115 110 9 10 20 30 40 50 70 NO NO OUTPUT (ons of dollars) --0- AS 1x LRAS
Transcribed Image Text:6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output supplied by firms can deviate from the natural level of output if the actual price level deviates from the expected price level in the economy. A number of theories explain reasons why this might happen. For example, the misperceptions theory asserts that changes in the price level can temporarily mislead firms about what is happening to their output prices. Consider a soybean farmer who expects a price level of 100 in the coming year. If the actual price level turns out to be 90, soybean prices will and if the farmer mistakenly assumes that the price of soybeans declined relative to other prices of goods and services, the quantity of soybeans supplied. If other producers in this economy mistake changes in the price level for changes in their relative prices, the unexpected decrease in the price level causes the quantity of output supplied to level of output in the short run. she will respond by the natural Suppose the economy's short-run aggregate supply (AS) curve is given by the following equation: Quantity of Output Supplied Natural Level of Output + ax (Price Level A-Price Level) The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a-$4 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $4 billion. Suppose the natural level of output is $40 billion of real GDP and that people expect a price level of 100. V On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange ine segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105, and 110. The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a-$4 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $4 billion. Suppose the natural level of output is $40 billion of real GDP and that people expect a price level of 100. On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange Ine segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105, and 110, ******* 125 115 110 9 10 20 30 40 50 70 NO NO OUTPUT (ons of dollars) --0- AS 1x LRAS
Suppose the natural level of output is $40 billion of real GDP and that people expect a price level of 100. On the following graph, use the purple fine (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105, and 110. PRICE LEVEL 58EESSSS 429 120 115 110 M N 79 0 10 20 30 40 10 00 70 OUTPUT (Bons of dollars) 80 00100 -0- AS LRAS (?) The short-run quantity of output supplied by firms will exceed the natural level of output when the actual price level that people expected. the price level
Transcribed Image Text:Suppose the natural level of output is $40 billion of real GDP and that people expect a price level of 100. On the following graph, use the purple fine (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105, and 110. PRICE LEVEL 58EESSSS 429 120 115 110 M N 79 0 10 20 30 40 10 00 70 OUTPUT (Bons of dollars) 80 00100 -0- AS LRAS (?) The short-run quantity of output supplied by firms will exceed the natural level of output when the actual price level that people expected. the price level
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