8. In the graph above, assume that the economy is currently in point E. In this situation, if the government does not take any policy measures to bring the economy to the fill-employment level of output, the economy will move toward point ____ in the long run.a. Cb. Ac. Dd. E9. (Continue to use the above graph) Again, assume that the economy is currently in point E. Now, the Fed wants to stabilize the output (that is, maintain the output at the full-employment level) by conducting monetary policy. Then the new equilibrium output will be at ___.a. Ab. Bc. Cd. De. E ### Educational Website Content: Understanding Short-Run and Long-Run Economic Adjustments#### AD-AS Diagram ExplanationThe diagram displayed is a typical Aggregate Demand-Aggregate Supply (AD-AS) model used to illustrate the relationship between the price level (P) and output (Y) in an economy. In this model:- **LRAS (Long-Run Aggregate Supply)**: A vertical line representing the full-employment level of output, where the economy's resources are fully utilized.- **SRAS (Short-Run Aggregate Supply)**: Three upward sloping lines (SRAS₁, SRAS₂, SRAS₃) representing different short-run equilibrium states.- **AD (Aggregate Demand)**: A downward sloping line representing the total demand for goods and services at different price levels.The intersection of these curves indicates different equilibrium points (A, B, C, D, E) in the economy.#### Questions**8. Long-Run Adjustment Without Government Intervention**Assume the economy is at point E in the diagram. If the government does not implement any policies to adjust to the full-employment level, the economy will naturally move to point __ in the long run.Options:- a. C- b. A- c. D- d. E**9. Monetary Policy to Stabilize Output**Continuing with the scenario where the economy is at point E, if the Federal Reserve (Fed) aims to stabilize output by monetary policy, the economy will achieve a new equilibrium at point __.Options:- a. A- b. B- c. C- d. D- e. EThis model is essential for understanding how economies adjust to achieve equilibrium and the role of policy interventions in influencing economic outcomes.

Answered: The following AD-AS diagram is only for…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

8. In the graph above, assume that the economy is currently in point E. In this situation, if the
government does not take any policy measures to bring the economy to the fill-employment
level of output, the economy will move toward point ____ in the long run.
a. C

b. A

c. D

d. E
9. (Continue to use the above graph) Again, assume that the economy is currently in point E.
Now, the Fed wants to stabilize the output (that is, maintain the output at the full-employment
level) by conducting monetary policy. Then the new equilibrium output will be at ___.
a. A

b. B

c. C

d. D

e. E

### Educational Website Content: Understanding Short-Run and Long-Run Economic Adjustments

#### AD-AS Diagram Explanation

The diagram displayed is a typical Aggregate Demand-Aggregate Supply (AD-AS) model used to illustrate the relationship between the price level (P) and output (Y) in an economy. In this model:

- **LRAS (Long-Run Aggregate Supply)**: A vertical line representing the full-employment level of output, where the economy's resources are fully utilized.
- **SRAS (Short-Run Aggregate Supply)**: Three upward sloping lines (SRAS₁, SRAS₂, SRAS₃) representing different short-run equilibrium states.
- **AD (Aggregate Demand)**: A downward sloping line representing the total demand for goods and services at different price levels.

The intersection of these curves indicates different equilibrium points (A, B, C, D, E) in the economy.

#### Questions

**8. Long-Run Adjustment Without Government Intervention**
Assume the economy is at point E in the diagram. If the government does not implement any policies to adjust to the full-employment level, the economy will naturally move to point __ in the long run.

Options:
- a. C
- b. A
- c. D
- d. E

**9. Monetary Policy to Stabilize Output**
Continuing with the scenario where the economy is at point E, if the Federal Reserve (Fed) aims to stabilize output by monetary policy, the economy will achieve a new equilibrium at point __.

Options:
- a. A
- b. B
- c. C
- d. D
- e. E

This model is essential for understanding how economies adjust to achieve equilibrium and the role of policy interventions in influencing economic outcomes.

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