Based on the given figure, the economy is initially in long-run equilibrium at point A. Ifthere is a favorable supply shock that increases potential output and shifts the long-run aggregate supply curve from LRAS to LRAS', then there is initially gap andthe short-run aggregate supply curve willInflationP24ABLRAS LRASDEY*OutputY'SRAS'SRASSRASADa.an expansionary: eventually shift to SRAS"b. an expansionary; eventually shift to SRAS'c. a recessionary; eventually shift to SRAS'd. a recessionary; eventually shift to SRAS"

Potential output, also referred to as potential GDP or the natural level of output, represents the…

Based on the given figure, the economy is initially in long-run equilibrium at point A. If there is a favorable supply shock that increases potential output and shifts the long- run aggregate supply curve from LRAS to LRAS', then there is initially. the short-run aggregate supply curve will gap and Inflation A M C LRAS LRAS D E Y* Output Y SRAS' SRAS SRAS AD a. an expansionary: eventually shift to SRAS" b. an expansionary; eventually shift to SRAS' a recessionary; eventually shift to SRAS' d. a recessionary; eventually shift to SRAS" c.

Based on the given figure, the economy is initially in long-run equilibrium at point A. If there is a favorable supply shock that increases potential output and shifts the long- run aggregate supply curve from LRAS to LRAS', then there is initially. the short-run aggregate supply curve will gap and Inflation A M C LRAS LRAS D E Y* Output Y SRAS' SRAS SRAS AD a. an expansionary: eventually shift to SRAS" b. an expansionary; eventually shift to SRAS' a recessionary; eventually shift to SRAS' d. a recessionary; eventually shift to SRAS" c.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Figure 34-2 PRICE LEVEL LRAS B QUANTITY OF OUTPUT AD₂ AD. SRAS, SRAS Refer to Figure 34-2. If the economy is in long-run equilibrium, a favorable shift in short-run aggregate supply curve would move the economy from A to B. B to C. ○ C to D. ○ D to A
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,…
PRICE LEVEL O a. C to D. Ob. D to C. Oc.B to A Od. A to B. D LRAS O B AD QUANTITY OF OUTPUT SRAS, SRAS AD Refer to Figure 34-2. If the economy is in long-run equilibrium, then an adverse shift in short-run aggregate supply would move the economy from
When a supply-side shock is assumed to be permanent: O only the LRAS curve shifts. O only the SRAS curve shifts. O both the LRAS curve and the SRAS curve shift. O nither the LRAS curve nor the SRAS curve shifts.
The figure to the right shows an economy in a short-run equilibrium at point A Using the three-point curved line drawing tool, illustrate cost-push inflation. Properly label this curve Note: Carefully follow the instructions above and only draw the required object. Which of the following is most likely to cause the cost shock that shifts the AS curve consistent with cost-push inflation? A. A surge in the price of crude oil. OB. A tax increase on households. OC. An increase in the size of government. OD. A flood of new immigrants. Price level, Pa AD₂ Yo Aggregate output (income), Y AS du
In the dynamic model of AD-AS in the diagram to the right, the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues policy. This will result in OA. short term interest rates higher than what would occur if no policy had been pursued. OB. unemployment rates higher than what would occur if no policy had been pursued. OC. real GDP lower than what would occur if no policy had been pursued. OD. inflation higher than what would occur if no policy had been pursued. MIDD Price level 102 100 LRAS, A 10 Real GDP B 00 LRAS AD. 10.8 11 SRAS₁ SRAS, AD₂
Figure 34-3 PRICE LEVEL a a a LRAS Y, Y₂ QUANTITY OF OUTPUT SRAS. SRAS. AD Refer to Figure 34-3. Starting from point B and assuming that aggregate demand is held constant, in the long run the economy is likely to experience a falling price level and a falling level of output, as the economy moves to point C. falling price level and a rising level of output, as the economy moves to point A. rising price level and a falling level of output, as the economy moves to point A. Orising price level and a rising level of output, as the economy moves to point C.
Suppose the economy is in the long-run equilibrium. b. Now 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 your diagram to show what happens to output and the price level in the short run. c. Use the sticky-wage theory of aggregate supply to explain what will happen to output and the price level in the long run (assuming there are no policy changes). What role does the expected price level play in this adjustment? Be sure to illustrate your analysis in a graph.
If the economy begins at an equilibrium at potential output, a negative aggregate demand shock has which of the following effects in the short-ru? a. output and prices increase and unemployment falls below the natural rate b. output and prices increase and unemployment rises above the natural rate c. output and prices decrease and unemployment rises above the natural rate d. output and prices decrease and unemployment falls below the natural rate
Question 47 Exhibit: Supply Shock A. O C. O B. LRAS O D. D C A E Y Y Assume that the economy is at point E. With no further shocks or policy moves, the economy in the long run will be at point: SRAS₁ SRASO SRAS₂ AD
What would a Keynesian likely recommend in response to a recession?
For each shock identified below, shift the AD curve, the SRAS curve, or both to show its effects on aggregate demand and/or aggregate supply. Then move point E to the new short-run equilibrium to indicate the new price level P and output Y. Assume the economy starts out in long-run equilibrium. a. An exogenous decrease in the velocity of money. Price Level (Y) LRAS E AD SRAS