Aggregate Supply shocks and the medium run Consider an economy with output equal to the natural level of output. Now suppose there is a drop in unemployment benefits. a. Using the model developed in this lesson, show the effects of a drop in unemployment benefits on the position of the AD and AS curves in the short run and in the medium run. b. How will the drop in unemployment benefits affect output and the price level in the short run and in the medium run?

Aggregate Supply shocks and the medium run Consider an economy with output equal to the natural level of output. Now suppose there is a drop in unemployment benefits. a. Using the model developed in this lesson, show the effects of a drop in unemployment benefits on the position of the AD and AS curves in the short run and in the medium run. b. How will the drop in unemployment benefits affect output and the price level in the short run and in the medium 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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question 2: In Figure 2, what are the factors that may cause the aggregate demand to shift from AD to AD1? What is the difference between demand pull inflation, cost push inflation, and recession?
For Shock C: Suppose the economy starts in the long run equilibrium. Illustrate changes that the shock will cause in the short run (using AD-SRAS). Explain why each curve shifts. Determine how the price level and output will be affected in the short run. Mark the output gap on the diagram. Is the output gap positive or negative? Is the economy is booming, or is it in a recession? On the same diagram illustrate how the economy will adjust to the shock in the long run and explain the mechanism. Determine how the price level and output will be affected in the long run. C. Firms expect an economic boom in the coming years As a result of this shock, in the short run the (SRAS Curve/AD Curve) will shift? In consequence, in the short run prices and output will? In the short run, there will be a ? (negative/postive) output gap,which means there will be a ? (boom/recession) As time passes, because of high unemployment the wages in the economy will? (decrease/increase) As a result,…
Start at full-employment (FE) equilibrium with flexible wages and worker misperception of price level changes in the short run. Suppose then that we have an increase in Aggregate Demand. First, think about the short-run effects on price level (P), output level (Q), wage level (W), employment (L), and unemployment (U)? In the long run, once workers realize that there was a change in the price level, they will change the supply curve of labor. When all subsequent wage and price adjustments take place, we will be in a new long-run equilibrium. From the original full-employment (FE) equilibrium to the final one, what is the net change in the price level (P), output level (Q), the nominal wage (W), employment (L), unemployment rate (U), and the real wage (W/P)? Group of answer choices a) An increase in P, no change in Q, no change in W, an increase in L, an increase in U and no change in W/P. b) An increase in P, a decrease in Q, a decrease in W, a decrease in L, an…
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Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not?
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