The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $600 billion. Suppose households suddenly begin to spend less and save more in order to increase saving for retirement. Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the sharp increase in saving. PRICE LEVEL 240 200 160 120 80 8 0 200 400 600 800 OUTPUT (Billions of dollars) AS AD 1000 1200 ģ 4 AS ? the price level In the short run, the decrease in consumption spending associated with the increase in saving causes the price level to people expected and the quantity of output to the natural level of output. The sharp increase in saving will cause the unemployment rate to the natural rate of unemployment in the short run. Again, the following graph shows a hypothetical economy experiencing long-run equilibrium at the expected price level of 120 and natural output level of $600 billion, prior to the decrease in consumption spending associated with the increase in saving. Along the transition from the short run to the long run, price-level expectations will curve will shift to the. and the

The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $600 billion. Suppose households suddenly begin to spend less and save more in order to increase saving for retirement. Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the sharp increase in saving. PRICE LEVEL 240 200 160 120 80 8 0 200 400 600 800 OUTPUT (Billions of dollars) AS AD 1000 1200 ģ 4 AS ? the price level In the short run, the decrease in consumption spending associated with the increase in saving causes the price level to people expected and the quantity of output to the natural level of output. The sharp increase in saving will cause the unemployment rate to the natural rate of unemployment in the short run. Again, the following graph shows a hypothetical economy experiencing long-run equilibrium at the expected price level of 120 and natural output level of $600 billion, prior to the decrease in consumption spending associated with the increase in saving. Along the transition from the short run to the long run, price-level expectations will curve will shift to the. and the

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5:09 C A & 1 & P M - 32% Page 8 of 5 QUESTION B2 The figure below depicts aggregate demand and aggregate supply in the nation of Pacifica in 2019. Long-Run AS Short-Run AS AD Real GDP At the beginning of 2020, a wave of business optimism led producers to sharply increase their planned investment expenditure. a. What effect, if any, will this increased investment expenditure have in the short-run on the Aggregate Demand curve? What effect, if any, will it have on the Short-Run Aggregate Supply curve? b. After the increased investment expenditure, will short-run equilibrium real GDP be above or below potential GDP? How do you know? The president of Pacifica is concerned about the effect of this new investment expenditure on the economy, and she wishes to use monetary policy to move equilibrium GDP back toward potential GDP. (For the remainder of the question, assume that the Pacifica Central Bank is Pacifica's version of the United States Federal Reserve, that Pacifica's banking and…
The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $300 billion. Suppose a stock market boom increases household wealth and causes consumers to spend more. Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the stock market boom. PRICE LEVEL 3 AS 200 AD -α- 180 8 0 100 200 300 AD 400 500 600 OUTPUT (Billions of dollars) AS (?) In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to level people expected and the quantity of output to the price the natural level of output. The stock market boom will cause the unemployment rate to ▼the natural rate of unemployment in the short run. Again, the following graph shows a hypothetical economy experiencing long-run equilibrium at the expected price level of 120 and natural output level of $300 billion, prior to the…
8. Which of the following explain why the Aggregate Demand curve is downward sloping? a) An increase in the price level decreases the purchasing power of money denominated wealth, which in turn causes a decline in on consumption spending. b) An increase in the price level decreases the purchasing power of money, which means that more money is needed to purchase goods. This causes buyers of investment and durable goods to require bigger loans to finance their purchases. This, in turn, causes an increase in the demand for loanable funds which leads to a higher interest rate. A higher interest rate will reduce the real purchases of investment and durable goods. c) An increase in the price level makes goods relatively more expensive to foreigners causing them to buy less which means that net exports will decline. d) All of the above. e) None of the above. 9. Which of the following explain why the Aggregate Supply curve is upward sloping?…
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 95. 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: 85, 90, 95, 100, and 105. PRICE LEVEL 125 120 115 110 105 100 95 90 85 80 75 0 + 10 20 ¶¶ 30 40 50 60 70 OUTPUT (Billions of dollars) + 80 90 100 -O AS LRAS (?) The short-run quantity of output supplied by firms will rise above the natural level of output when the actual price level falls…
The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $600 billion. Suppose firms become pessimistic about future business conditions and cut back on investment spending. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the business pessimism. 240 AS AD AS O PRICE LEVEL 200 160 120 80 40 AD
Assume the economy of Germany is in a long run equilibrium with full employment. Draw a correctly labeled graph of short run aggregate supply, long run aggregate supply, and aggregate demand. Show each of the following Equilibrium output, labeled Y1. Equilibrium price level, labeled PL1 2. Suppose that there is a significant boom in the German stock market, causing all stocks to increase in value by 15%. On your graph in part A, show the effect this will have on the equilibrium in the short run, labeling the new equilibrium output and price level Y2 and PL2, respectively. 3. Using a correctly labeled graph of the Phillips Curve, show how this change will affect the economy. 4. What two fiscal policy options does the federal government have to fix the market imbalance? Explain how each would affect the economy.
4 Exhibit 11-2 Aggregate demand and supply model 110 Price level 105 (CPI) 100 95 E NE Full employment. AS AD₁ AD 5.0 5.1 Real GDP (trillions of dollars per year) Suppose the economy in Exhibit 11-2 is in equilibrium at point E, and the marginal propensity to consume (MPC) is 0.9. Following Keynesian economics, the federal government can move the economy to full employment at point E₂ by increasing government spending by $_____ billion.
The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $300 billion. Suppose a stock market boom increases household wealth and causes consumers to spend more. Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the stock market boom. PRICE LEVEL 240 200 160 120 80 40 AS AD AD D AS ?
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 figure to the right shows the determination of the economy's short run equilibrium price level and aggregate output (income). Draw a single line or curve (either AD or AS) such that a new equilibrium occurs with a lower price level and a higher output (income). NOTE: Shifts in AD require the line drawing tool while the three-point curved line drawing tool is used to shift AS. Properly label your new line or curve. Note: Carefully follow the instructions above, and only draw the required object. Which of the following events could have caused this particular change? A. A sharp increase in immigration. B. An increase in bad weather and natural disasters. OC. A reduction in the country's labor force participation rate. OD. An increase in entrepreneurial-stifling taxes and regulations. Price level, P Aggregate output (income), Y ASO ADO O
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