Suppose that the production function for the economy is given by: Y = AL²/3K/3 Suppose that this economy has 1,000 units of Labour, and 125 units of capital, and TFP (A) is equal to 10. The Short-Run Aggregate Supply Curve (AS) here is given by: Y = 5p And when we consider the AEF at a price level of $1,400, the main components of it (C, I, & G) are given by (we are assuming a closed economy NX = 0): C = 300 + 0.8Y I = 300 G= 200 1. What is potential GDP in this question (Y*)? Show your work. Suppose also that for any $10 decrease in price, desired consumption will increase by $5. 2. Write down the equation for the Aggregate Demand Curve (AD) in the form of Y = a + bp. Show your work. 3. What is the current Short-Run Equilibrium value for Real GDP (Y) and the price level (p)? Show your work. 4. Draw the AD, AS, and LRAS curves. Label all x-intercepts and y-intercepts. Are we currently in an Inflationary Gap, Recessionary Gap, or in Long-Run Equilibrium? How do you know?

Suppose that the production function for the economy is given by: Y = AL²/3K/3 Suppose that this economy has 1,000 units of Labour, and 125 units of capital, and TFP (A) is equal to 10. The Short-Run Aggregate Supply Curve (AS) here is given by: Y = 5p And when we consider the AEF at a price level of $1,400, the main components of it (C, I, & G) are given by (we are assuming a closed economy NX = 0): C = 300 + 0.8Y I = 300 G= 200 1. What is potential GDP in this question (Y*)? Show your work. Suppose also that for any $10 decrease in price, desired consumption will increase by $5. 2. Write down the equation for the Aggregate Demand Curve (AD) in the form of Y = a + bp. Show your work. 3. What is the current Short-Run Equilibrium value for Real GDP (Y) and the price level (p)? Show your work. 4. Draw the AD, AS, and LRAS curves. Label all x-intercepts and y-intercepts. Are we currently in an Inflationary Gap, Recessionary Gap, or in Long-Run Equilibrium? How do you know?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Price Level 6 ASO ADO AD₁ a b c Real GDP Refer to the figure above. If aggregate supply is AS, and aggregate demand is ADo. then: f represents a price level that would result in a shortage of real output of ac f represents a price level that would result in a surplus of real output of a at any price level above g, a shortage of real output would occur f represents a price level that would result in a surplus of real output of ac a surplus of real output of gh would occur
Q4
Unlike the Suez Canal, the Panama Canal is highly relevant for the US economy. A blockage of the Panama Canal could produce severe supply disruptions for the US economy. Suppose there is a severe blockage of the Panama Canal that last for six weeks. The following questions consider how such a blockage of the Panama Canal would affect the US economy in the short-run. Create a graph that shows how a blockage of the Panama Canal would affect the US economy in the short run.
Part B. Numerical exercise (32 points). The aggregate demand of one IS-LM-PC economy is characterized by the following set of equations: C₁ = 50+0.6(Yt − T) ; It = 30+0.2Y₁ − 140(rt+x); T = G = 100; it = 0.05; x = 0. On the supply-side, the production function is Y₁ = Nt, the labor force is L= 600, and the Phillips curve is πtπ=0.001 (Yt - Yn) In the current period (year t), the economy is in a medium-run equilibrium with π = π = 0.02 (2%). i) Write down the IS curve and the LM line, and find the equilibrium values for the endogenous variables Yt, rt, Ct, It, ut, and πt. ii) There is a financial crisis in year t +1 and the risk premium rises to 3.25%, x' = 0.0325, while expected inflation is still +1 ==0.02. Such financial turmoil creates a demand contraction in the IS-LM-PC model, and there is no initial reaction by either the government or the central bank (G, T and i remain unchanged). Derive the new IS curve and obtain the equilibrium values for Yt+1, rt+1, C++1, It+1, ut+1, and…
The data below represents the price level, the aggregate demand, and the aggregate supply data for an economy. Use the data points to plot an aggregate demand curve and aggregate supply curve for this economy. Each curve is labeled as AS (Aggregate Supply) or AD (Aggregate Demand) and each point is labeled as a, b, or c from the table headings. (Hint: Note that point a from the AD curve is already plotted with the correct coordinates. Plot the remaining points.) Provide your answer below: Price Level -100 200 180 160- 140- 120 AS: a ($140,100) AS: b ($300, 100) AS: c ($500,100) 100- -80 -60 40 20 0 -20 AD: c ($100,80) 100 Price Level Aggregate Supply (AS) Aggregate Demand (AD) 200 AD: b ($300,80) AD: a ($390,80) 300 400 600 500 Real GDP ($) a b 120 80 $320 $420 $390 $340 C 170 $540 $280
Unlike the Suez Canal, the Panama Canal is highly relevant for the US economy. A blockage of the Panama Canal could produce severe supply disruptions for the US economy. Suppose there is a severe blockage of the Panama Canal that last for six weeks. The following questions consider how such a blockage of the Panama Canal would affect the US economy in the short-run. Which of the following statements describes how a blockage of the Panama Canal would affect the US economy in the short run? A) The price level would increases and real GDP would rise above its natural level. B) The price level would decrease and real GDP would rise above its natural level. C) The price level would decrease and real GDP would fall below its natural level. D) The price level would increase and real GDP would fall below its natural level
Suppose that firms become very pessimistic about future business conditions and cut heavily on investment in capital equipment. [Label A, B, C for the initial, new short-run and new long-run equilibrium respectively] a)Use an aggregate-demand/aggregate-supply model to show the short-run effect of this pessimism on the economy. Label the new levels of prices and real output. Explain in words why the aggregate quantity of output supplied changes. (Use the sticky wage theory in your explanation)
Assume the economy of Germany is in a long run equilibrium with full employment. Draw a correctly labeled graph of short run aggregate supply, long run aggregate supply, and aggregate demand. Show each of the following Equilibrium output, labeled Y1. Equilibrium price level, labeled PL1 2. Suppose that there is a significant boom in the German stock market, causing all stocks to increase in value by 15%. On your graph in part A, show the effect this will have on the equilibrium in the short run, labeling the new equilibrium output and price level Y2 and PL2, respectively. 3. Using a correctly labeled graph of the Phillips Curve, show how this change will affect the economy. 4. What two fiscal policy options does the federal government have to fix the market imbalance? Explain how each would affect the economy.
Suppose AE = 0.50 Y + 500. If GDP = $1,000, and There will be excess supply, so inventory will accumulate and firms will reduce output next period. There will be excess demand, so inventory will shrink and firms will increase output next period. There will be neither excess demand nor excess supply, so Y = $1,000 is the equilibrium level of GDP.
LRAS, LRAS₂2 A. B. C. D. E. A B C E D LL AD₁ SRAS₁ W SRAS2 AD2 Real GDP (Y) Based on the figure, which of the following would cause the long-run equilibrium point to change from point B to point D? The population has aged and there are fewer people in the labor force. Firms and workers expected the price level to rise. The economy experienced an increase in government spending. The economy was in an expansion and has adjusted. The country's overall productivity increased.
I'm a newbie so please if you could go step by step. thanks in advance.
The term potential output refers to: a)The maximum possible output for an economy b)The quantity of output that would be produced if every member of the labor force worked 40 hours per week c)The quantity of output produced when the price level is the same as firms and workers expected when they agreed on input prices and wages d)The quantity of output produced at the intersection of the AD and AS curves