Suppose a firm is currently producing 900 computers per week and charging a price of $1,200 per computer. a. Demonstrate how the firm will respond to a negative demand shock. Assume prices are flexible. Instructions: Use the tool provided, 'S Flexible Prices', to draw the supply curve when prices are flexible. Then use the tool provided, 'D Negative Shock', to illustrate the shift in the aggregate demand curve when there is a negative demand shock. Computer Market Tools S Flexible Pric D Negative Sh $1,200 Demand 900 Computers per week b. Generalizing from the computer market specifically to the economy as a whole, what will happen when this negative demand shock occurs across the economy's many markets? O Real GDP will stay the same, prices will decrease, and unemployment will increase. Real GDP will increase, prices will increase, and unemployment will decrease. O Real GDP will stay the same, prices will decrease, and unemployment will stay the same. O Real GDP will decrease, prices will increase, and unemployment will increase. Price

Suppose a firm is currently producing 900 computers per week and charging a price of $1,200 per computer. a. Demonstrate how the firm will respond to a negative demand shock. Assume prices are flexible. Instructions: Use the tool provided, 'S Flexible Prices', to draw the supply curve when prices are flexible. Then use the tool provided, 'D Negative Shock', to illustrate the shift in the aggregate demand curve when there is a negative demand shock. Computer Market Tools S Flexible Pric D Negative Sh $1,200 Demand 900 Computers per week b. Generalizing from the computer market specifically to the economy as a whole, what will happen when this negative demand shock occurs across the economy's many markets? O Real GDP will stay the same, prices will decrease, and unemployment will increase. Real GDP will increase, prices will increase, and unemployment will decrease. O Real GDP will stay the same, prices will decrease, and unemployment will stay the same. O Real GDP will decrease, prices will increase, and unemployment will increase. Price

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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How do prices change due to an economic contraction that is caused by a shift in aggregate demand? O a. They rise in the short run and fall back to their original level in the long run. b. They fall in the short run and fall even more in the long run. c. They rise in the short run and rise even more in the long run. d. They fall in the short run and rise back to their original level in the long run.
6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output that firms supply can deviate from the natural level of output if the actual price level in the economy deviates from the expected price level. Several theories explain how this might happen. For example, the sticky-price theory asserts that the output prices of some goods and services adjust slowly to changes in the price level. Suppose firms announce the prices for their products in advance, based on an expected price level of 100 for the coming year. Many of the firms sell their goods through catalogs and face high costs of reprinting if they change prices. The actual price level turns out to be 90. Faced with high menu costs, the firms that rely on catalog sales choose not to adjust their prices. Sales from catalogs will v , and firms that rely on catalogs will respond by v the quantity of output they supply. If enough firms face high costs of adjusting prices, the unexpected…
$1000 D1 D2 0 300 500 650 D3 Computers Per Week A Price $1200 $1000 $600 0 D1 D2 D3 500 Computers Per Week B Refer to the graphs Suppose a firm is currently producing 500 computers per week and charging a price of $1,000. How will the firm respond to a negative demand shock if prices are flexible?
ans ences rations If in Year 1 the price level was 100 and real GDP was $20 trillion and in Year 2 the price level was 105 and real GDP was $21 billion, then the predominant change that occured in Year 2 was OA a decrease in aggregate demand. B. an increase (shift to the right) in short-run aggregate supply. OC. a decrease (shift to the left) in short-run aggregate supply OD. an increase in aggregate demand.
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"Fracking" is a relatively new technology that allows drillers to extract significantly larger quantities of natural gas from existing deposits than was previously possible. How is this discovery likely to affect the economy? (Hint: Think about whether this will have a short-run or long-run effect.) This discovery will likely: O increase both SRAS and LRAS, leading to a long-term increase in output and decrease in prices. O increase AD but decrease both SRAS and LRAS, leading to an uncertain change in long- term output and a decrease in prices. decrease both SRAS and LRAS, leading to a long-term decrease in output and increase in prices. O increase AD, SRAS, and LRAS, leading to a long-term increase in output and an uncertain change in prices.
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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
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9. Money Supply Suppose an economy is in long-run equilibrium. The central bank raises the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. RANDO LHAS Aggregale Supply * A Demand Quantity of Oulpul Now adjust the graph to show the new long-run equilibrium. Aggregate and - Aggregate Supply What causes the economy to move from its short-run equilibrium to its long-run equilibrium? The government increases taxes to curb aggregate demand. The government increases spending to increase aggregate demand. O Nominal wages, prices, and perceptions adjust downward to this new price level. O Nominal wages, prices, and perceptions adjust upward to this new price level. Which of the following is true according to the sticky-wage theory of aggregate supply as a result of the increase in the money supply? Check all that apply. Nominal wages at the initial equilibrium are equal to…
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