Answered: LRAS SRAS AD Real GDP 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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Question

Suppose that because of globally adverse meteorological conditions, there are serious concerns of climbing prices in an extensive group of commodities. As a result, people now expect an acute increase in the level of input prices. The figure shows aggregate demand (AD), short‑run aggregate supply (SRAS), and long‑run aggregate supply (LRAS). Move one or more of these curves to describe the short‑run effect this would have in the economy and answer the two questions.

Adjust graph in picture.

In the short run, price level

a. increases.

b. decreases.

c. The change is indeterminate.

In the short run, real GDP (or aggregate output)

a. The change is indeterminate.

b. decreases.

c. increases.

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