**Title: Understanding Short-Run Aggregate Demand and Supply Curves**The figure below illustrates the short-run aggregate demand (AD) and short-run aggregate supply (SRAS) curves of an economy. The focus is on the distance between Y1 and Y2, which represents a specific economic concept.**Figure 10.2 Explanation:**- **Axes:** - The vertical axis represents the Price Level. - The horizontal axis represents Real GDP.- **Curves:** - **AD (Aggregate Demand) Curve:** This downward-sloping curve shows the relationship between the price level and the quantity of goods and services demanded. - **SRAS (Short-Run Aggregate Supply) Curve:** This upward-sloping curve depicts the relationship between the price level and the quantity of goods and services that firms are willing and able to produce in the short run.- **Lines:** - The dashed vertical line labeled "Potential output" indicates the Full Employment Output or the Natural Rate of Output, where the economy operates at its full potential. - Y1 denotes the current level of Real GDP, which is to the left of the potential output. - Y2 represents the potential level of Real GDP.**Question:**In this figure, the distance between Y1 and Y2 represents:- a. a recessionary gap.- b. the full employment output.- c. the natural rate of unemployment.- d. a cost-push inflation.- e. an expansionary gap.**Answer Explanation:**The distance between Y1 and Y2 signifies a situation where the actual output (Y1) is less than the potential output (Y2), indicating that the economy is not producing at its full capacity. This is typically referred to as:**a. a recessionary gap.**This gap indicates underperformance in the economy, often associated with higher unemployment and underutilized resources. ### Economic Concepts: Price Levels and Aggregate Supply#### Problem StatementSuppose the actual and expected price levels in an economy are initially equal. However, the actual price level becomes higher due to some change in economic conditions. Which of the following will occur eventually?#### Answer Choices- **a.** The short-run aggregate supply curve will shift to the right.- **b.** The short-run aggregate supply curve will become flatter.- **c.** The economy will move leftward along the short-run aggregate supply curve.- **d.** The economy will move rightward along the short-run aggregate supply curve.- **e.** The short-run aggregate supply curve will shift to the left.#### ExplanationTo understand what will eventually happen, one must analyze the impact of a higher actual price level on the short-run aggregate supply (SRAS) curve and the overall economy. Economic theory suggests that if the actual price level increases unexpectedly:- An increase in price levels typically leads to higher production costs.- Firms may temporarily produce more to take advantage of higher prices, leading to a movement along the curve rather than a shift.- Over time, the SRAS curve would likely shift to the left as production costs rise, reducing the quantity of goods and services supplied at any given price level.Understanding these dynamics can help in analyzing real-world economic scenarios and predicting potential shifts and movements within an economy’s aggregate supply and demand framework.

NOTE: We’ll answer the first question since the exact one wasn’t specified. Please submit a new…

The figure below shows the short-run aggregate demand and supply curves of an economy. In this figure, the distance between Y1 and Y2 represents: Figure 10.2 Price level Potential output SRAS AD Real GDP Y, Y2 O a. a recessionary gap. O b. the full employment output. O . the natural rate of unemployment. O d. a cost-push inflation. O e. an expansionary gap.

The figure below shows the short-run aggregate demand and supply curves of an economy. In this figure, the distance between Y1 and Y2 represents: Figure 10.2 Price level Potential output SRAS AD Real GDP Y, Y2 O a. a recessionary gap. O b. the full employment output. O . the natural rate of unemployment. O d. a cost-push inflation. O e. an expansionary gap.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

An economic expansion rather than a recession occurs Select one: O a. when growth in real GDP is positive. O b. when the unemployment rate falls below 5 percent. O c when the federal budget is balanced. O d. when the unemployment rate is not changing.
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
A constant inflation rate is shown with aggregate demand shifting rightward O A. faster than the aggregate supply shifts leftward. B. at the same rate as the aggregate supply shifts rightward. C. faster than the aggregate supply shifts rightward. D. with no shifts in aggregate supply. O E. at the same rate as the aggregate supply shifts leftward.
QUESTION 2 The interaction of demand-pull and cost-push inflation will result: O a. in permanently lower output and prices O b. in permanently higher output and prices Oc. in the same output and lower prices Od. in the same output and higher prices
Which of the following shifts in aggregate demand and short-run aggregate supply would cause an unambiguous increase in inflation? Select one: O a. A decrease in AD and an increase in SRAS O b. No change in AD and an increase in SRAS O c. An increase in AD and an increase in SRAS d. An increase in AD and a decrease in SRAS O e. A decrease in AD and a decrease in SRAS
This graph is for the Canadian economy. Price Level a Select one: O Y₁ Real GDP What could have caused the increase in aggregate demand from AD1 to AD2? AD1 O O AD2 a. A higher Canadian dollar exchange rate. b. A decrease in the number of American tourists in Canada. c. An economic expansion in the United States. d. Less American direct investment in Canada. than those in Canada.
Actual inflation is the sum of three separate components: .. O a. Accelerated, expected and output gap inflation. O b. Validated, expected and output gap inflation. O c. Output gap, expected and supply-shock inflation. O d. Accelerated, demand and supply inflation. O e. Output gap, wage-push and demand inflation.
The phrase that inflation is a "monetary phenomenon" means... O a. Increases in the price level are always associated with increases in the money supply. O b. Only an increase in the money supply can start a period of inflation. Oc A continuous rise in prices is possible only with C. continuing increases in the money supply. O d. Repeated supply shocks cannot drive up prices if there is no monetary validation. O e The price level cannot rise without an increase in the money supply.
Price level (CPI) Exhibit 10A-6 Aggregate demand and supply model 250 200 150 100 50 0 2 E₂ 4 LRAS 6 SRAS₁ Given the shift of the aggregate demand curve from AD1 to AD2 in Exhibit 10A-6, the real GDP and price level (CPI) in long-run equilibrium will be: O a. $10 billion and 200. O b. $10 billion and 150. O c. $10 billion and 100. O d. $4 billion and 150. SRAS₂ AD₁ 8 10 12 14 15 16 17 Real GDP (billions of dollars per year) AD₂
Suppose an economy that has been operating at full employment has been experiencing percent annual inflation. If output later falls to a level that is less than potential output, prices generally will begin to rise at O A. a rate less than 4 percent. O B. a rate greater than 4 percent. O C. a rate of 0 percent. O D. a rate of 4 percent. Click to select your answer. esc & %23 24 % 9 4. T Y
Which one of the following economic policies would not be effective in combating a recession? O a. Increase wages to stimulate aggregate demand and depress the rate of unemployment. O b. Expand the money supply and increase fiscal spending to stimulate aggregate demand. O c. Expand the money supply to stimulate aggregate demand and reduce the rate of unemployment. O d. Decrease wages to increase the quantity of labor demanded and to reduce unemployment.
Price Level LAS SAS, SAS, AD SAS, AD, AD, Real Output Refer to the graph. Suppose the economy is at SAS, and AD₂. What is a possible way the economy can return to potential output? What dynamic price level feedback effect could prevent the return to potential output? How would the dynamic price level feedback effect show up in the graph? O A decrease in asset prices in the economy; a decrease in asset prices would further decrease AD; a shift in AD from AD2 to AD3 O A decrease in material costs in the economy; a decrease in material costs would decrease AD; a shift in AD from AD2 to AD1 A decrease in wages in the economy; a decrease in wages would further decrease AD; a shift in AD from AD2 to AD3 A decrease in wages in the economy; a decrease in wages would further decrease AD; a shift in AD from AD2 to AD1