8. Economic fluctuations IThe 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 the government increases spending on building and repairing highways, bridges, and ports.Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the increase in governmentspending.240AS20016012080400the price level people expected andthe natural level of output. The increase in government spending will cause the unemployment rate toPRICE LEVELAD| 2 | 2020040060080010001200OUTPUT (Billions of dollars)In the short run, the increase in government spending on infrastructure causes the price level tothe quantity of output tothe 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 $600 billion,before the increase in government spending on infrastructure.and theDuring the transition from the short run to the long run, price-level expectations willcurve will shift to theNow show the long-run impact of the increase in government spending by shifting both the aggregate demand (AD) curve and the short-runaggregate supply (AS) curve to the appropriate positions.240AS20016012080AD400, the quantity of outputPRICE LEVEL2 | 2020040060080010001200OUTPUT (Billions of dollars)In the long run, as a result of the increase in government spending, the price levelthe natural level of output, and the unemployment ratethe natural rate of unemployment.

Aggregate demand is a sum of consumption spending, investment spending, government social and net…

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 the government increases spending on building and repairing highways, bridges, and ports. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the increase in government spending. ? 240 AS 200 160 120 80 40 0 the price level people expected and the natural level of output. The increase in government spending will cause the unemployment rate to PRICE LEVEL AD 0 2 0 2 0 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the short run, the increase in government spending on infrastructure causes the price level to the quantity of output to the natural rate of unemployment in the short run.

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 the government increases spending on building and repairing highways, bridges, and ports. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the increase in government spending. ? 240 AS 200 160 120 80 40 0 the price level people expected and the natural level of output. The increase in government spending will cause the unemployment rate to PRICE LEVEL AD 0 2 0 2 0 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the short run, the increase in government spending on infrastructure causes the price level to the quantity of output to 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

See similar textbooks

Similar questions

11. Recession True or False: The aggregate-demand curve slopes downward because it is the horizontal sum of the demand curves for individual goods. True False
6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output that firms supply can deviate from the natural level of output if the actual price level in the economy deviates from the expected price level. Several theories explain how this might happen. For example, the sticky-price theory asserts that the output prices of some goods and services adjust slowly to changes in the price level. Suppose firms announce the prices for their products in advance, based on an expected price level of 100 for the coming year. Many of the firms sell their goods through catalogs and face high costs of reprinting if they change prices. The actual price level turns out to be 90. Faced with high menu costs, the firms that rely on catalog sales choose not to adjust their prices. Sales from catalogs will v , and firms that rely on catalogs will respond by v the quantity of output they supply. If enough firms face high costs of adjusting prices, the unexpected…
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 the government increases spending on building and repairing highways, bridges, and ports. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the increase in government spending. 240 AS 200 AD 160 AS 120 80 AD 40 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the short run, the increase in government spending on infrastructure causes the price level to the price level people expected and the quantity of output to the natural level of output. The increase in government spending 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 $600 billion, before the increase in…
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
b) The AD (Aggregate Demand) curve shows the relationship between general price levels and real GDP. i. State and briefly explain the components of aggregate demand (AD).ii. State four factors that would cause ● A fall in aggregate demand● An increase in aggregate demand
3. Why the aggregate demand curve slopes downward The graph below shows the aggregate demand (AD) curve for a hypothetical economy. At point X, the quantity of output demanded is $500 billion, and the price level is 120. Moving up along the AD curve from point X to point Y, the quantity of output demanded falls to $300 billion, and the price level rises to 140. PRICE LEVEL 170 160 150 140 130 120 110 100 90 Y X AD (?
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…
8. Draw the macroeconomy in equilibrium (snowflake). What happens when aggregate demand increases? Show on graph. Label new short run equilibrium E2. What state is this economy in? a) Give an example of something that could have caused this. b) What happens to GDP and price level? c) In this scenario, what do we call the difference between actual GDP and potential GDP? d) What is the unemployment rate relative to the natural rate? e) How would the economy fix itself? This means market adjustments, not government intervention. Show on graph. Label new equilibrium E3. Briefly explain. US 1 1:3
8
3. Explain whether each of the following events will increase, decrease, or have no effect on longrun aggregate supply in your country. a. There is an increase in immigration into your country. b. Your government introduces a minimum wage above the market-clearing wage rate. c. Intel invents a new and more powerful computer chip. d. A severe flood damages factories.
3. In Keynesian short run aggregate supply curve segment what happens to the price and income (GDP) if the aggregate demand curve shifts outward or inward and why
2