**Exhibit 16.7: Potential Output and Economic Adjustment**This exhibit illustrates the relationship between the inflation rate and the unemployment rate through an economic model displaying shifts in the Aggregate Demand (AD) and Short-Run Aggregate Supply (SRAS) curves.**Graph Explanation:**- **Axes:** - The vertical axis represents the Price Level. - The horizontal axis represents Real GDP.- **Curves:** - The aggregate demand curve (AD) is shown, with its initial position labeled as AD and its shifted position labeled as AD*. - The short-run aggregate supply curve (SRAS) is shown.- **Notable Points:** - Potential Output (Yp) is marked on the horizontal axis. - Point (a) on the graph represents the initial equilibrium where the AD intersects with the SRAS. - Points (b, c, d, e, f) mark different potential positions on the graph relating to shifts in AD and SRAS.**Analysis Question:**Refer to Exhibit 16.7, which reflects the relationship between the inflation rate and the unemployment rate. If the economy is initially at point c and aggregate demand increases, in the long run, the economy will _______a. stay at point c.b. move toward point a.c. move toward point b.d. move toward point d.e. move toward point f.**Hint for Answer:**When aggregate demand (AD) increases, it can cause shifts in the short-run equilibrium. Consider how an increase in AD affects price levels and output in both the short run and long run and how the economy returns to its potential output over time.

In the figure, potential output is 140. The economy will be at full employment when actual GDP is…

Exhibit 16.7 Price level 26 22 16 10 6 Potential Output a ▬▬ OL AD bike 2 SRAS Real GDP 0 80 Y* 200 140 Refer to Exhibit 16.7, which reflects the relationship between the inflation rate and the unemployment rate. If the economy is initially at point c and aggregate demand increases, in the long run, the economy will. a. stay at point c. O b. move toward point a. O c. move toward point b. O d. move toward point d. O e. move toward point f. ^ bike jpg.jpg bike 2.jpg ENG AD" AD* hp >

Exhibit 16.7 Price level 26 22 16 10 6 Potential Output a ▬▬ OL AD bike 2 SRAS Real GDP 0 80 Y* 200 140 Refer to Exhibit 16.7, which reflects the relationship between the inflation rate and the unemployment rate. If the economy is initially at point c and aggregate demand increases, in the long run, the economy will. a. stay at point c. O b. move toward point a. O c. move toward point b. O d. move toward point d. O e. move toward point f. ^ bike jpg.jpg bike 2.jpg ENG AD" AD* hp >

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2. Explaining short-run economic fluctuations A majority of economists believe that in the long run, real economic variables and nominal economic variables behave independently of one another. For example, an increase in the money supply, a no long-run effect on the quantity of goods and services the economy can produce, a and nominal variables is known as variable, will cause the price level, a AL AXIS However, in the short run, most economists believe that real and nominal variables are intertwined. Economists use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incomplete short-run aggregate demand (AD) and aggregate supply (AS) diagram-it needs appropriate labels for the axes and curves. In the questions that follow you will identify some of the missing labels. AS variable, to increase but will have variable. The distinction between real variables ?
Since 1970, the United States has experienced 5 periods and 2 periods. O stagflationary, deflationary O inflationary; expansionary O recessionary; inflationary O recessionary; expansionary
Refer to the figure at right. If the economy is currently operating at point C, then there is A. unemployment. B. a recessionary gap. C. deflation. D. an inflationary gap.
None
4. Suppose that people expect inflation to equal 3 percent, but in fact prices rise by 5 percent. Indicate whether this unexpected higher rate of inflation would help or hurt each of the following groups. a homeowner with a fixed-rate mortgage. a union worker with a fixed labor contract a company that has invested some of its endowment in a government bonds which pay a fixed rate of return. 5. Indicate how each of the following events would affect the aggregate demand AD curve: a short-run decrease in the price level an increase in consumer confidence on the price level and real GDP an increase in government purchases
Please help with this practice question
Question 1 The economy Is at full emplayment when A there are more unemployedbtworkers than vacancCIe Ball unemployment Is cyClical C there are no unemplayment wUorkers Dallemploymentis frietional and lor structabral Question 2 Structioral Unemployment Isassociated with A short -term unemployment B general down turns in the economY C the changing of jobs ina dynamic economy D the changes intechnology that change required Question 3 Real GDP Is adjusted for inflation ATrue B False Queston 4 Including discouraged workers in the calculation unemployment rate would JA increase the reported rate B lower the reported rate not change the reported rate D chunge the reported rate butin an unpredictat
Price Level S Ꭰ FIGURE 6-2 D S Domestic Product 17. In Figure 6-2, if the aggregate demand curve shifts inward over time, the economy will a. experience inflation. b. see a sustained increase in the price level. c. experience a significant decrease in unemployment. d. experience economic recession.
PRICE LEVEL a a" a" LRAS Y, Y₂ QUANTITY OF OUTPUT 8 a. rising price level and a falling level of output, as the economy moves to point A. b. falling price level and a falling level of output, as the economy moves to point C. c. falling price level and a rising level of output, as the economy moves to point A O d. rising price level and a rising level of output, as the economy moves to point C. SRAS, SRAS 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 AD
Price Level Long-run AS Y, Y₁ Short-run AS Quantity of Real Output Suppose the economy is operating in a recession such as point B in the graph. If policymakers allow the economy to adjust to the long-run natural level on its own O a people will reduce their price expectations and aggregate demand will shift right O b. people will reduce their price expectations and the short-run aggregate supply will shift right Opeople will raise their price expectations and the short-run aggregate supply will shift left O d. people will raise their price expectations and aggregate demand will shift left
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.
Figure 6 PRICE LEVEL LRAS Y, Y₂ QUANTITY OF OUTPUT SRAS; SRAS, AD 15. Refer to Figure 6. Starting from point A and assuming that aggregate demand is held constant, in the long run the economy is likely to experience a a. falling price level and a falling level of output, as the economy moves to point C. b. rising price level and a falling level of output, as the economy moves to point B. c. falling price level and a rising level of output, as the economy moves to point B. d. rising price level and a rising level of output, as the economy moves to point C.