The economy of Ashenvale is currently in a long-run equilibrium, depicted by point E, on the graph. Economy of Ashenvale Suppose that there is a negative AD shock to the economy and the AD curve shifts to the left, as shown by the AD, curve on the graph. The following steps are designed so that you can explain how the economy adapts to the shock. 2,400- 2,200 a. Using the point drawing tool, plot and label the new short-run equilibrium after this AD shock. 2,000 1,800- AS Carefully follow the instructions above, and only draw the required object. A 1,600- E 1400- ........ In the short run, the equilibrium price will be approximately $ and the new equilibrium quantity will be approximately 1,200- ADO 1.000 B00 AD, B00 400- 200- B,000 6,00 Real GDP (Y) 2.000 4,000 10,000

The economy of Ashenvale is currently in a long-run equilibrium, depicted by point E, on the graph. Economy of Ashenvale Suppose that there is a negative AD shock to the economy and the AD curve shifts to the left, as shown by the AD, curve on the graph. The following steps are designed so that you can explain how the economy adapts to the shock. 2,400- 2,200 a. Using the point drawing tool, plot and label the new short-run equilibrium after this AD shock. 2,000 1,800- AS Carefully follow the instructions above, and only draw the required object. A 1,600- E 1400- ........ In the short run, the equilibrium price will be approximately $ and the new equilibrium quantity will be approximately 1,200- ADO 1.000 B00 AD, B00 400- 200- B,000 6,00 Real GDP (Y) 2.000 4,000 10,000

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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For Shock F: Suppose the economy starts in the long run equilibrium. Illustrate changes that the shock will cause in the short run (using AD-SRAS). Explain why each curve shifts. Determine how the price level and output will be affected in the short run. Mark the output gap on the diagram. Is the output gap positive or negative? Is the economy is booming, or is it in a recession? On the same diagram illustrate how the economy will adjust to the shock in the long run and explain the mechanism. Determine how the price level and output will be affected in the long run. F. The central bank decides to raise the money supply; as a result, the interest rate in the economy goes down As a result of this shock, in the short run the (SRAS Curve/AD Curve) will shift? In consequence, in the short run prices and output will? In the short run, there will be a ? (negative/postive) output gap,which means there will be a ? (boom/recession) As time passes, because of high unemployment the…
Consider the following AD/AS diagram of the macroeconomy, with LRAS shown as the vertical curve, AD as the downward sloping curve, and SRAS as the upward sloping curve. First, place a point at the current equilibrium. Then, suppose the government wants to stimulate the economy to restore it to long-run equilibrium by cutting taxes. Draw a new curve that shows the impact of this policy change. (You'll have to determine which, but draw it so that it reflects a parallel, vertical shift in one of the existing curves. Make sure that it's the same size as the ones shown here using the segment tool.) Finally, place a point at the new equilibrium using the point tool.
Name some factors that could cause AD to shift, and say weather they would shift AD to the right or to the left.
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Please answer Question 1.1
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