Hint: For simplicity, ignore any possible impact of the severe weather on the natural level of output. 120 LRAS 115 AS AD 110 105 AS 100 LRAS 95 AD 90 85 80 80 85 90 95 100 105 110 115 120 OUTPUT (Billions of dollars) The short-run economic outcome resulting from the increase in production costs is known as Now suppose that the government immediately pursues an accommodative policy by increasing government purchases in response to the short-run economic impact of the severe weather. In the long run, when the government pursues accommodative policy, the output in the economy will be $ billion and the price level will be PRICE LEVEL
Hint: For simplicity, ignore any possible impact of the severe weather on the natural level of output. 120 LRAS 115 AS AD 110 105 AS 100 LRAS 95 AD 90 85 80 80 85 90 95 100 105 110 115 120 OUTPUT (Billions of dollars) The short-run economic outcome resulting from the increase in production costs is known as Now suppose that the government immediately pursues an accommodative policy by increasing government purchases in response to the short-run economic impact of the severe weather. In the long run, when the government pursues accommodative policy, the output in the economy will be $ billion and the price level will be PRICE LEVEL
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
The following graph shows the short-run aggregate supply curve (ASAS), the aggregate demand curve (ADAD), and the long-run aggregate supply curve (LRASLRAS) 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 level of output, $100 billion.
Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases 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 severe weather on the natural level of output
Transcribed Image Text:Hint: For simplicity, ignore any possible impact of the severe weather on the natural level of output.
120
LRAS
115
AS
AD
110
105
AS
100
LRAS
95
AD
90
85
80
80
85
90
95
100
105
110
115
120
OUTPUT (Billions of dollars)
The short-run economic outcome resulting from the increase in production costs is known as
Now suppose that the government immediately pursues an accommodative policy by increasing government purchases in response to the short-run
economic impact of the severe weather.
In the long run, when the government pursues accommodative policy, the output in the economy will be $
billion and the price level will be
PRICE LEVEL
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