8. Applying the AD-AS model to a growing economy Consider a fictional economy of Shana. The following graphs show aggregate supply and aggregate demand curves for two years-1992 and 2005-in which the economy of Shana experienced growth. Refer to the following graphs to answer the questions that follow. PRICE LEVEL 1992 REAL GDP AS. AD₁ (?) PRICE LEVEL 2005 REAL GDP AS. AD₁ ?

8. Applying the AD-AS model to a growing economy Consider a fictional economy of Shana. The following graphs show aggregate supply and aggregate demand curves for two years-1992 and 2005-in which the economy of Shana experienced growth. Refer to the following graphs to answer the questions that follow. PRICE LEVEL 1992 REAL GDP AS. AD₁ (?) PRICE LEVEL 2005 REAL GDP AS. AD₁ ?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.

Question

Based on these graphs, fluctuations in the growth rate of the economy of Shana come primarily from variations in the rate at which
increases.
True or False: Based on the source of fluctuations, GDP in Shana will grow more quickly when inflation is relatively high.
False
True

8. Applying the AD-AS model to a growing economy
Consider a fictional economy of Shana. The following graphs show aggregate supply and aggregate demand curves for two years-1992 and 2005-in
which the economy of Shana experienced growth.
Refer to the following graphs to answer the questions that follow.
PRICE LEVEL
1992
I
REAL GDP
AS
AD₁
PRICE LEVEL
2005
REAL GDP
I
I
1
AS.
AD₁

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