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.

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

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1. Problems and Applications Q1 Suppose the economy is in a long-run equilibrium, as shown in the following graph. Now suppose that firms become pessimistic about future business conditions and decide to cut back on investment spending, resulting in a fall in aggregate demand. Use your diagram to show what happens to output and the price level in the short run. Price Level LRAS Aggregate Supply Aggregate Demand Quantity of Output As a result of this change, the unemployment rate Aggregate Demand Aggregate Supply LRAS ? Use the sticky-wage theory of aggregate supply to think about what will happen to output and the price level in the long run (assuming there is no change in policy).
9. Suppose an economy is in long-run equilibrium. A.) Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). Be sure to include both short-run and long-run aggregate supply. B.) The central bank raises the money supply by 5%. 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 (call it point B). C.) Now show the new long-run equilibrium (call it point C). What causes the economy to move from point B to point C? D.) According to the sticky-wage theory of aggregate supply, how do nominal wages at point A compare to nominal wages at point B? How do nominal wages at point A compare to nominal wages at point C?
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
The graph below depicts an economy where a decline in aggregate demand has caused a recession. Assume the government decides to conduct fiscal policy by increasing government purchases to reduce the burden of this recession. Fiscal Policy 180 LRAS AS 160 140 120 100 80 60 40 AD 20 AD, 100 200 300 400 500 600 700 800 900 Real GDP (billions of dollars) Inctructions: Enter your answers as a whole number. Price Level
3. What is the difference between the long-run aggregate supply (LRAS) and the short-run aggregate supply (SRAS) curves? Give examples of factors that decrease SRAS. Which way does the SRAS curve shift?
✔ 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
Economics 8
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28. Which of the following are determinants of aggregate demand? Choose all that apply. A. a spike in net exports B. the Federal Reserve lowering its interest rates C. a change in technology D. growing consumer confidence
3. Under what circumstances an aggregate demand curve would shift either to the right or left? Provide some real world examples.
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