8. Economic fluctuations IThe following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $300 billion.Suppose households suddenly begin to spend less and save more in order to increase saving for retirement.Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the sharpincrease in saving.PRICE LEVEL240200160120840100200300400OUTPUT (Billions of dollars)ASAD500600ADAS?In the short run, the decrease in consumption spending associated with the increase in saving causes the price level topeople expected and the quantity of output torate tothe natural rate of unemployment in the short run.the price levelthe natural level of output. The sharp increase in saving will cause the unemployment Again, the following graph shows a hypothetical economy experiencing long-run equilibrium at the expected price level of 120 and natural output levelof $300 billion, prior to the decrease in consumption spending associated with the increase in saving.Along the transition from the short run to the long run, price-level expectations willcurve will shift to theUsing the graph, illustrate the long-run impact of the sharp increase in saving by shifting both the aggregate demand (AD) curve and the short-runaggregate supply (AS) curve in the appropriate directions.PRICE LEVEL240200816012080400100200300400OUTPUT (Billions of dollars)ASAD500000In the long run, due to the sharp increase in saving, the price levellevel of output, and the unemployment rate,AD1ASthe natural rate.and theⒸthe quantity of outputthe natural

Savings are the funds that a consumer does not spend on products and services. It is a portion of…

8. Economic fluctuations I The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $300 billion. Suppose households suddenly begin to spend less and save more in order to increase saving for retirement. Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the sharp increase in saving. PRICE LEVEL 240 200 8 160 120 2 9 100 200 300 400 OUTPUT (Billions of dollars) AS AD 500 800 AD 2 AS ? in the short run, the decrease in consumption spending associated with the increase in saving causes the price level to meople expected and the quantity of output to ate to the price level the natural level of output. The sharp increase in saving will cause the unemployment the natural rate of unemployment in the short run.

8. Economic fluctuations I The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $300 billion. Suppose households suddenly begin to spend less and save more in order to increase saving for retirement. Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the sharp increase in saving. PRICE LEVEL 240 200 8 160 120 2 9 100 200 300 400 OUTPUT (Billions of dollars) AS AD 500 800 AD 2 AS ? in the short run, the decrease in consumption spending associated with the increase in saving causes the price level to meople expected and the quantity of output to ate to the price level the natural level of output. The sharp increase in saving will cause the unemployment the natural rate of unemployment in the short run.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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8. Economic fluctuations I The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $600 billion. Suppose a sudden and severe contraction in the housing market reduces the value of homes and causes consumers to spend less. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the housing market slump. (2) 240 AS 200 AD 140 AS 120 80 AD 40 200 400 800 1000 1200 OUTPUT (BIlons of dollars) In the short run, the decrease in consumption spending associated with the housing market contraction causes the price level to * the price level people expected and the quantity of output to v the natural level of output. The housing market slump will cause the unemployment rate to the natural rate of unemployment in the short run. Again, the following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of…
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✔ 2 Aplia Assignment Ch 20 4. Determinants of aggregate supply The following graph shows a decrease in short-ron aggregate supply (AS) in a hypothetical economy where the currency is the dollar Specifically, the short-un aggregate supply curve shifts to the left from AS, to AS, causing the quantity of output supplied at a price level of 100 to fall from $200 billion to $150 billion K 1 1 **### PRICE LEVEL 200 20 QUANTITY OF OUTPUT 380 400 The following table lists several determinants of short-run aggregate supply. Regulations on the firm Tax rates Input prices Complete the table by selecting the changes in each scenario necessary to decrease short-run aggregate supply Change Necessary to Decrease AS Grade It Now Save & Continue Continue without saving
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9. Problems and Applications Q3 Suppose an economy is in long-run equilibrium. The central bank raises the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. Price Level LRAS Aggregate Supply Aggregate Demand Quantity of Output Aggregate Demand 10 Aggregate Supply Now adjust the graph to show the new long-run equilibrium. What causes the economy to move from its short-run equilibrium to its long-run equilibrium? Nominal wages, prices, and perceptions adjust upward to this new price level. The government increases taxes to curb aggregate demand. The government increases spending to increase aggregate demand. Nominal wages, prices, and perceptions adjust downward to this new price level. According to the sticky-wage theory of aggregate supply, nominal wages at the initial equilibrium are nominal wages at the short-run equilibrium resulting from the increase in the money…
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