Suppose that you have an AEF at a price level of p = $100 given by: AEF = 1,200+ 0.40Y Suppose also that for every $1 increase in the price level, desired consumtion decreases by $1. Given this, what is the slope of Aggregate Demand (AD) in the AD-AS model? Note: round your answers to three decimal places.

Suppose that you have an AEF at a price level of p = $100 given by: AEF = 1,200+ 0.40Y Suppose also that for every $1 increase in the price level, desired consumtion decreases by $1. Given this, what is the slope of Aggregate Demand (AD) in the AD-AS model? Note: round your answers to three decimal places.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The figure to the right illustrates the dynamic AD-AS model. Suppose the economy is in equilibrium in the first period at point (A). In the second period, the economy reaches point (B). What policy would the federal government likely pursue in order to move AD₂ to AD2, policy and reach equilibrium (point C) in the second period? A. Increase government spending B. Open market purchase of government securities C. Increase taxes D. All of the above C GDP deflator 103 102 100 LRAS₁ LRAS2 OB с SRAS₁ SRAS2 AD2, (policy) AD1 14.34.4 14 Real GDP ($trillions) AD2
QUESTION 1 Consider the aggregate supply-aggregate demand (AD-AS) model that we saw in class. Assume that prices are fixed in the short run and are fully flexible in the long run. The initial full-employment level of output is Y=900 and the initial price level is P=100: The aggregate demand curve is given by Y= 1500 - 6P: Scenario 1, short run: A reduction in personal income taxes shifts the demand curve to Y=1530 - 6P. In the short run, the output is and the price level is Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard may automatically delete it and you should not do anything about it. In case of percentages, do not type in the percentage symbol "%".
Suppose that in 2011, Quarterville’s government cuts taxes. Show how this event will change equilibrium output and price level by shifting either the SRAS or AD curve.
Assume that an economy is initially operating at the natural rate of output (full employment output). Use the AD-AS model to illustrate graphically the effects on price and output of a increase in government spending and an increase in the cash rate. Explain your assumptions with respect to the range of aggregate supply of your analysis. With diagrams
Price Level a b c AS AD AD₁ Real GDP Refer to the figure above. If the aggregate supply curve shifted from ASo to AS₁, we could say that: aggregate supply has increased, and the equilibrium price level has risen to Og aggregate supply has decreased, equilibrium real output has increased, and the equilibrium price level has decreased aggregate supply has decreased, equilibrium real output has decreased, and the equilibrium price level has increased aggregate supply has increased, equilibrium real output has decreased, and the equilibrium price level has increased an increase in the amount of real output supplied has occurred
Which of the following would be most likely to produce a leftward shift of the aggregate demand (AD) curve? a) an increase in exports b) an increase in energy costs c) a decrease in imports d) a decrease in government expenditure
The figure to the right shows the determination of the economy's short run equilibrium price level and aggregate output (income). Draw a single line or curve (either AD or AS) such that a new equilibrium occurs with a lower price level and a higher output (income). NOTE: Shifts in AD require the line drawing tool while the three-point curved line drawing tool is used to shift AS. Properly label your new line or curve. Note: Carefully follow the instructions above, and only draw the required object. Which of the following events could have caused this particular change? A. A sharp increase in immigration. B. An increase in bad weather and natural disasters. OC. A reduction in the country's labor force participation rate. OD. An increase in entrepreneurial-stifling taxes and regulations. Price level, P Aggregate output (income), Y ASO ADO O
Do you believe that the Hayek’s classical AD-AS model explain the factors that cause changes (shifts) in AS realistically? Why or why not?
Which of the following is a major difference between the AD-AS model and the dynamic AD-AS model? The dynamic AD-AS model assumes OA. AD only includes consumption, investment, and government purchases, while the AD-AS model assumes AD includes consumption, investment, government purchases and net exports. B. the SRAS is stable and will not shift, while the AD-AS model assumes the SRAS can only change with an exogenous event such as oil price changes. OC. the economy does not experience long-run growth, while the AD-AS model assumes there is constant inflation in the economy. OD. potential GDP increases continually, while the AD-AS model assumes the LRAS does not change.
QUESTION 4 Consider the aggregate supply-aggregate demand (AD-AS) model that we saw in class. Assume that prices are fixed in the short run and are fully flexible in the long run. The initial full-employment level of output is y-900 and the initial price level is P= 100. The aggregate demand curve is given by y=1500 – 6P. %3D Scenario 2, long run: A major earthquake destroys a part of the economy's capital stock and reduces the full-employment level of output shifts to y = 880: In the long run, the output is and the price level is Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard may automatically delete it and you should not do anything about it. In case of percentages, do not type in the percentage symbol "%".
Question 3 Explain fully why the AD curve has a negative slope. Use graphs to illustrate. Note You will need to read ahead to Chapter 6 to help you answer this question.
Suppose concerns about the size of the federal budget deficit lead theU.S.Congress to cut all funding for research and development for ten years. Assuming this has an impact on technology growth, what does the AD/AS model predict would be the likely effect on equilibrium GDP and the price level?