Suppose the economy's short-run aggregate supply (AS) curve is given by the following equation: Quantity of Output Supplied = Natural Level of Output + a x (Price LevelActuat Price LevelExpecte The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a = $2 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $2 billion. Suppose the natural level of output is $50 billion of real GDP and that people expect a price level of 105. On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 95, 100, 105, 110, and 115. ? 125 120 AS 115 110 105 LRAS 100 95 90 85 80 75 10 20 30 40 50 60 70 80 90 100 OUTPUT (Billions of dollars) The short-run quantity of output supplied by firms will fall below the natural level of output when the actual price level the price level that people expected. PRICE LEVEL

Suppose the economy's short-run aggregate supply (AS) curve is given by the following equation: Quantity of Output Supplied = Natural Level of Output + a x (Price LevelActuat Price LevelExpecte The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a = $2 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $2 billion. Suppose the natural level of output is $50 billion of real GDP and that people expect a price level of 105. On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 95, 100, 105, 110, and 115. ? 125 120 AS 115 110 105 LRAS 100 95 90 85 80 75 10 20 30 40 50 60 70 80 90 100 OUTPUT (Billions of dollars) The short-run quantity of output supplied by firms will fall below the natural level of output when the actual price level the price level that people expected. 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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Q2. Explain whether each of the following events will increase, decrease or have no effect on long-run aggregate supply. a) Malaysia experiences a wave of immigration. b) Intel invents a new and more powerful computer chip. c) Tenaga Nasional Berhad (TNB) invests in new electricity transmission technology. d) A severe flood damages factories in Pahang.
The following graph shows the aggregate demand curve (AD), the short-run aggregate supply curve (AS), and the long-run aggregate supply curve ( LRAS) for a hypothetical economy. Initially, the expected price level equals the actual price level, and the economy experiences long-run equilibrium at a natural level of output of $100 billion.. Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs of producing goods and services. Use the graph to help you answer the questions about the short-run and long-run effects of the increase in production costs that follow. (Note: You will not be graded on any adjustments made to the graph.) Hint: For simplicity, ignore any possible impact of the severe weather on the natural level of output.
If investment increases by 24 billion and the economy's MPC is 0 0.5, the aggregate demand curve will shift rightward by _____ billion dollars at each price level.
Refer to the information provided in Figure below to answer the question that follow. AS Price level, P| AD AD, AD AD, AD, AD Aggregate output (income), Y Refer to Figure Firms respond to a decrease in net taxes by mostly raising their prices when the aggregate demand curve shifts from Select one: a. AD6 to AD1. b. AD1 to AD2. C. AD5 to AD6. d. AD3 to AD4.
Which of the following equations is most likely to represent short-run aggregate supply according to the misperceptions theory? A) Y = 6000 B) Y = 6000 + 50(P - Pe) C) P = 2 D) PY = 12,000 Show Work
Improved methods of inventory control were supposed to reduce fluctuations in inventory stocks. It is clear that these methods have helped reduce the equilibrium inventory/sales ratios in both the manufacturing and trade sectors over the past decade. Yet we find that during the 2001 recession, inventory investment accounted for more than the total decline in real GDP, the first time that had happened since 1949. Explain whether this result is due to a set of odd coincidences, or whether the improved methods of inventory control actually caused bigger fluctuations in inventory investment relative to final sales.
For example, an increase in the money supply,(NORMINAL, REAL) a variable, will cause the price level, a (NORMINAL, REAL) variable, to increase but will have no long-run effect on the quantity of goods and services the economy can produce, a (REAL, NORMINAL) variable. The notion that an increase in the quantity of money will impact the price level but not the output level is known as (MONETARY, THE QUANITY, PRICE) .
Assume an economy operates in the intermediate range of its AS curve (upward sloping AS curve). State the direction of shift in the AD or the AS curve for each of the following changes and the impact of that change on the price level, on GDP, and on employment. a) a rise in the price of crude oil b) an increase in the spending on national defense c) an increase in the cost of imported goods d) an improvement in labor productivity
A recessionary gap exists when the macro economy is in equilibrium at less than the potential output of the the economy because aggregate demand is insufficient to fully employ all of society' s resources. In other words, the equilibrium (AD = AS) occurs to the left of the vertical long-run supply curve. At this point, potential output is reached ( full employment) and if any unemployment occurs, then it is due to structural or frictional; that is, the economy is at its natural rate of employment. True or falses
Q.1.17 A decrease in the price level will: (a) shift the AS curve to the left.(b) shift the AD curve to the left.(c) shift the AS curve to the right.(d) leave both the AD curve and the AS curve unchanged.
Suppose the U.S. economy is initially (year 2020) in both short-run and long-run equilibrium and it is described by following functions: AD function: Y=12-P SRAS function: Y=YN+P-Pe where the expected price is Pe=2 and the natural rate of output is YN=10. Then, an expansion in AD occurs in year 2021 such that the new AD function is: Y=14-P Compute the Real GDP growth rate from 2020 to 2021 if the economy is now in short-run equilibrium only. (Express your answer in percent omitting the symbol %. For example, for 2% enter 2)
Given: In the Great Recession that began in 2007-8, many workers become pessimistic about their future employment, which caused them to save more and spend less. Many employees lost their jobs, which caused them to spend less. The Aggregate Demand Curve shifted to the left <--, to show a decrease in demand. (Pay close attention to the direction of the shift of the Aggregate Demand Curve --to the left!) Exhibit 6 Three Ranges of the Aggregate Supply Curve Price Level (CPI) AD₁ ADO 8 28 Keynesian Range YK к AS Intermediate Rang Real GDP Classical Range Full employment