The following graph represents the short-run aggregate supply curve (SRAS) based on an expected price level of 90. The economy's natural real GDP level is $9 trillion. Major unions across the country have recently negotiated three-year wage contracts with employers. The wage contracts are based on an expected price level of 90, but the actual price level turns out to be 60. Show the short-run effect of the unexpectedly low price level by dragging the curve or moving the point to the appropriate position. Tool tip: To move the curve, click and drag any part of the curve except the point. To move the point, click and drag the point along the curve. If you want to move both, first move the curve, and then move the point. The curve and point will snap into position, so if you try to move one of them and it snaps back to its original position, just try again and drag it a little farther. 180

The following graph represents the short-run aggregate supply curve (SRAS) based on an expected price level of 90. The economy's natural real GDP level is $9 trillion. Major unions across the country have recently negotiated three-year wage contracts with employers. The wage contracts are based on an expected price level of 90, but the actual price level turns out to be 60. Show the short-run effect of the unexpectedly low price level by dragging the curve or moving the point to the appropriate position. Tool tip: To move the curve, click and drag any part of the curve except the point. To move the point, click and drag the point along the curve. If you want to move both, first move the curve, and then move the point. The curve and point will snap into position, so if you try to move one of them and it snaps back to its original position, just try again and drag it a little farther. 180

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter10: Aggregate Demand And Supply

Section: Chapter Questions

Problem 8SQP

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The following graph represents the short-run aggregate supply curve (SRAS) based on an expected price level of 120. The economy's full- employment output level is $9 trillion. Major unions across the country have recently negotiated three-year wage contracts with employers. The wage contracts are based on an expected price level of 120, but the actual price level turns out to be 160. Show the short-run effect of the unexpectedly high price level by dragging the curve or moving the point to the appropriate position. PRICE LEVEL (CPI) 240 200 160 40 0 0 3 SRAS[120] 6 9 12 REAL GDP (Trillions of dollars) 15 18 SRAS[120] 0 (?) Interpret the change you drew on the previous graph by filling in the blanks in the following paragraph:
The following graph represents the short-run aggregate supply curve (SRAS) based on an expected price level of 180. The economy's full- employment output level is $9 trillion. Major unions across the country have recently negotiated three-year wage contracts with employers. The wage contracts are based on an expected price level of 180, but the actual price level turns out to be 240. Show the short-run effect of the unexpectedly high price level by dragging the curve or moving the point to the appropriate position. PRICE LEVEL (CPI) 380 300 240 180 80 0 3 SRAS[180] 9 12 REAL GDP (Trillions of dollars) 15 18 0 SRAS[180] 0
The following graph represents the aggregate supply (AS) curve based on an expected price level of 120. The economy's potential GDP level is $9 trillion. Major unions across the country have recently negotiated three-year wage contracts with employers. The wage contracts are based on an expected price level of 120, but the actual price level turns out to be 80. Show the short-run effect of the unexpectedly low price level by dragging the curve or moving the point to the appropriate position. Note: To move the curve, select and drag any part of the curve except the point. To move the point, select and drag the point along the curve. If you want to move both, first move the curve, and then move the point. The curve and point will snap into position, so if you try to move one of them and it snaps back to its original position, just try again and drag it a little farther. PRICE LEVEL 240 200 160 8 120 PRICE LEVEL 80 40 0 240 200 0 Interpret the change you drew on the previous graph by…
The following graph shows an aggregate demand curve (AD) illustrating the inverse relationship between the price level and the quantity of Real GDP in the United States. During World War II, the United States increased military spending. Show the effect of the following scenario on the aggregate demand curve by dragging the curve or moving the point to the appropriate position. Note: Tool tip: To move the curve, click and drag any part of the curve. The curve will snap into position, so if you try to move it and it snaps back to its original position, just try again and drag it a little farther. PRICE LEVEL Aggregate Demand I I " I 1 REAL GDP AD AD (?)
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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…
Assume the aggregate demand and aggregate supply curve intersect at a price level of 100. Explain the effect of a shift in the price level to 120 and to 50
The short-run quantity of output supplied by firms will exceed the natural level of output when the actual price level ———-that people expected.
The following graph shows an increase in short-run aggregate supply (SRAS) in a hypothetical economy. Specifically, short-run aggregate supply shifts to the right from SRAS₁ to SRAS2, causing the quantity of output supplied at a price level of 125 to rise from $250 billion to $350 billion. Review the graph and then complete the table that follows. PRICE LEVEL 200 175 150 125 100 75 50 25 0 0 50 SRAS SRAS₂ 100 150 200 250 300 350 400 REAL GDP (Billions of dollars) ? The following table lists several determinants of short-run aggregate supply. Complete the table by indicating the change needed in each determinant to increase short-run aggregate supply. Determinant Change Needed to Increase SRAS Input Prices increase or decrease Burdensome Regulations increase or decrease Technology decline or improvement
Describe the change in aggregate supply that should result from each of the following changes in determinants. Assume that nothing else is changing besides the identified change. (In your answer, indicate whether the change will "Decrease" or "Increase" aggregate supply or have no effect.) (a) A rise in the average price of inputs; (b) An increase in worker productivity; (c) Government antipollution regulations become stricter; (d) A new subsidy program is enacted for new business investment in productive equipment; (e) Energy prices decline.
The graph on the right shows a basic aggregate demand and aggregate supply graph (with LRAS constant) that shows the economy in long-run equilibrium at point A. Assume that there is an unexpected increase in the price of oil. 1.) Use the line drawing tool to show the resulting short-run equilibrium on your graph. Label any new aggregate demand or aggregate supply curve as AD2, SRAS2 or LRAS2 as appropriate 2) Use the point drawing tool to locate the new short-run equilibrium point Label this point B Carefully follow the instructions above, and only draw the required objects Price level (GDP Deflator, 2005 = 100) LRAS₁ A SRAS₁ Real GDP (trillions of 2005 dollars) AD1
Assume an economy operates in the intermediate range of its aggregate supply curve. State the direction of shift for the aggregate demand curve or aggregate supply curve for each of the following changes in conditions. What is the effect on the price level? On real GDP? On employment? a. The price of crude oil rises significantly (300%, say) raising the price of energy generally. b. Spending on national defense doubles. c. Investment spending falls as firms expect slower sales growth. d. An improvement in technology raises labor productivity. e. The United States raises exports of new passenger aircraft to China.