Note:Don't use chat bot ### Understanding Short-Run and Long-Run Aggregate SupplyThe following information is provided to illustrate the concepts of short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS) in the context of macroeconomic analysis. This resource is intended for students and educators as a guide to better understanding these economic principles.#### Scenario:Suppose the world price of oil decreases rapidly without warning but is not expected to remain at the new low level permanently. In the short run, it is less costly for firms to produce goods and services.### Graph Overview:The graph illustrates the interaction between aggregate demand (AD), short-run aggregate supply (SRAS), and long-run aggregate supply (LRAS) curves. The x-axis represents Real GDP (in Trillions of dollars), and the y-axis represents the Price Level.1. **LRAS Curve**: - Represented by the vertical line (typically unchanged in short-run analysis). - Indicates the potential output of the economy when all resources are fully utilized.2. **SRAS Curve**: - Represented by the upward-sloping line. - Shows the relationship between the total production of goods and services (Real GDP) and the price level in the short run.3. **AD Curve**: - Represented by the downward-sloping line. - Demonstrates the total quantity of goods and services demanded across various price levels.### Instructions:1. **Illustrate the Short-Run Effect of the Change**: - Before long-run adjustments occur, demonstrate the impact of the rapid decrease in the world price of oil by shifting the SRAS curve on the graph. - **Adjusting the SRAS Curve**: Lower oil prices reduce production costs, shifting the SRAS curve to the right (indicating an increase in aggregate supply).2. **Long-Run Perspective**: - If it is believed that there will be no long-term effects on the economy, leave the LRAS curve in its current position.### Note:- **Interactive Elements**: The provided graph may allow for manipulation of the SRAS and LRAS curves by dragging them to the desired position. - Adjust curves by selecting and dragging. - The curves will snap into position indicating your adjustment completion.### Contextual Analysis:- **Short-Run**: Illustrated by the shift of the SRAS curve.- **Long-Run**: Assumed no change in aggregate output or price

Here the supply curve is the curve depicting how much production of manufacturing goods is being…

Answered: Assume that aggregate demand is…

Assume that aggregate demand is unaffected by the oil price drop. After the economy has fully adjusted to the oil price drop, the in aggregate output and long-run effect is in the 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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Note:Don't use chat bot

### Understanding Short-Run and Long-Run Aggregate Supply

The following information is provided to illustrate the concepts of short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS) in the context of macroeconomic analysis. This resource is intended for students and educators as a guide to better understanding these economic principles.

#### Scenario:
Suppose the world price of oil decreases rapidly without warning but is not expected to remain at the new low level permanently. In the short run, it is less costly for firms to produce goods and services.

### Graph Overview:
The graph illustrates the interaction between aggregate demand (AD), short-run aggregate supply (SRAS), and long-run aggregate supply (LRAS) curves. The x-axis represents Real GDP (in Trillions of dollars), and the y-axis represents the Price Level.

1. **LRAS Curve**:
- Represented by the vertical line (typically unchanged in short-run analysis).
- Indicates the potential output of the economy when all resources are fully utilized.

2. **SRAS Curve**:
- Represented by the upward-sloping line.
- Shows the relationship between the total production of goods and services (Real GDP) and the price level in the short run.

3. **AD Curve**:
- Represented by the downward-sloping line.
- Demonstrates the total quantity of goods and services demanded across various price levels.

### Instructions:
1. **Illustrate the Short-Run Effect of the Change**:
- Before long-run adjustments occur, demonstrate the impact of the rapid decrease in the world price of oil by shifting the SRAS curve on the graph.
- **Adjusting the SRAS Curve**: Lower oil prices reduce production costs, shifting the SRAS curve to the right (indicating an increase in aggregate supply).

2. **Long-Run Perspective**:
- If it is believed that there will be no long-term effects on the economy, leave the LRAS curve in its current position.

### Note:
- **Interactive Elements**: The provided graph may allow for manipulation of the SRAS and LRAS curves by dragging them to the desired position.
- Adjust curves by selecting and dragging.
- The curves will snap into position indicating your adjustment completion.

### Contextual Analysis:
- **Short-Run**: Illustrated by the shift of the SRAS curve.
- **Long-Run**: Assumed no change in aggregate output or price

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