9. Economic fluctuations II The following graph shows the short-run aggregate-supply curve (AS), the aggregate-demand curve (AD), and the long-run aggregate-supply curve (LRAS) for a hypothetical economy. Initially, the expected price level is equal to the actual price level, and the economy is in long-run equilibrium at its natural rate of output, $80 billion. Suppose war in the world's main oil-producing region sharply reduces the world oil supply, causing oil prices to rise and increasing the costs of producing goods and services in this economy. Use the graph to help you answer the questions about the short-run and long-run effects of the increase in production costs that follow. (Note: You will not be graded on any adjustments made to the graph.) Hint: For simplicity, ignore any possible impact of the higher oil prices on the natural rate of output. 100 LRÅS 95 AS AD 90 85 AS 80 LRAS 75 70 AD 65 60 60 65 70 75 80 85 90 95 100 OUTPUT (Billions of dollars) The short-run economic outcome resulting from the increase in production costs is known as Now suppose that the government decides not to take any action in response to the short-run economic impact of the higher oil prices. In the long-run, when the government does nothing, the output in the economy will be s billion and the price level will be PRICE LEVEL

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The following graph shows the short-run aggregate-supply curve (AS), the aggregate-demand curve (AD), and the long-run aggregate-supply curve (LRAS) for a hypothetical economy. Initially, the expected price level is equal to the actual price level, and the economy is in long-run equilibrium at its natural rate of output, $80 billion.

NOTE:

The short-run economic outcome resulting from the increase in production costs is known as [deflation or stagflation or monetary neutrality or spendflation]

In the long-run, when the government does nothing, the output in the economy will be $______ In the long-run, when the government does nothing, the output in the economy will be ___________

9. Economic fluctuations II
The following graph shows the short-run aggregate-supply curve (AS), the aggregate-demand curve (AD), and the long-run aggregate-supply curve
(LRAS) for a hypothetical economy. Initially, the expected price level is equal to the actual price level, and the economy is in long-run equilibrium at
its natural rate of output, $80 billion.
Suppose war in the world's main oil-producing region sharply reduces the world oil supply, causing oil prices to rise and increasing the costs of
producing goods and services in this economy.
Use the graph to help you answer the questions about the short-run and long-run effects of the increase in production costs that follow. (Note: You
will not be graded on any adjustments made to the graph.)
Hint: For simplicity, ignore any possible impact of the higher oil prices on the natural rate of output.
100
LRÅS
95
AS
AD
90
85
AS
80
LRAS
75
70
AD
65
60
60
65
70
75
80
85
90
95
100
OUTPUT (Billions of dollars)
The short-run economic outcome resulting from the increase in production costs is known as
Now suppose that the government decides not to take any action in response to the short-run economic impact of the higher oil prices.
In the long-run, when the government does nothing, the output in the economy will be s
billion and the price level will be
PRICE LEVEL

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