Answered: Short-run graph Long-run graph LRAS…

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

The graphs illustrate an initial equilibrium for the economy. Suppose that the government increases spending.

Use the graphs to show the new positions of aggregate demand (AD), short‑run aggregate supply (SRAS), and long‑run aggregate supply (LRAS) in both the short run and the long run, as well as the short‑run and long‑run equilibriums resulting from this change. Then, indicate what happens to the price level and real GDP (or aggregate output) in the short run and in the long run. Adjust the graph.

explain the second image as well and which is right.

Short-run graph
Long-run graph
LRAS
LRAS
SRAS
SRAS
Short-run equilibrium
Long-run equilibrium
AD
Real GDP
Real GDP
Aggregate price level

In the short-run, the price level
In the long-run, the price level
and
and
increases
increases
GDP
GDP
decreases
decreases
increases
increases
stays the same
stays the same
decreases
decreases
stays the same
stays the same

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