The following graph shows a hypothetical economy that uses the dollar as its currency. The economy is in short-run equilibrium at an output level of300 billion and a price level of 60. Suppose that the economy's potential output is $200 billion.Use the purple line (diamond symbols) to plot the long-run aggregate supply (LRAS) curve on the graph.120100SRASAD80SRASLRASAD20100200300400500600REAL GDP (Index numbers)This economy's output ispotential output. To restore the economy to its potential, the government could usev fiscal policyShift either the AD curve or the SRAS curve to illustrate the changes consistent with the chosen government policySuppose that the marginal propensity to consume in this economy is 0.80. Assume, for simplicity, that there are no taxes or other factors that couldalter the multiplier effect of a change in government expenditures.The economy's expenditure multiplier is , which means that the government must alter its expenditures byto restore outputto potential output.PRICE LEVEL (Bilions of dollars)

The aggregate supply and demand in the economy determine the macroeconomic equilibrium in that…

Answered: The following graph shows a…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Draw diagram of a typical IS-LMmodel and indicate the changes in all the variables on the diagram should there be an increase in aggregate expenditure causing a shift of the IS curve to the right ( indicate the shift in the IS curve on your diagram) Indicate where macroequilibrium will be and properly label the axes on the diagram. Briefly explain what you understand such an IS-LM model is actually reflecting in terms of macroeconomics
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 a stock market boom increases household wealth and causes consumers to spend more. 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. 240 AS 200 AD 160 AS 120 80 AD 40 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to the price level people expected and the quantity of output to 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 the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $600 billion, before the increase in consumption spending associated with…
The graphs illustrate an initial equilibrium for the economy. Suppose that the Federal Reserve raises interest rates. Use the graphs to show the new positions of aggregate demand (AD), short-run aggregate supply (SRAS), and long-run aggregate supply (LRAS) in both the short run and the long run, as well as the short-run and long-run equilibriums resulting from this change. Then, indicate what happens to the price level and GDP in the short run and in the long run. Aggregate price level Short-run graph GDP In the short run, the price level LRAS Real GDP SRAS Short-run equilibrium AD and Aggregate price level Long-run graph LRAS Real GDP In the long run, the price level GDP SRAS Long-run equilibrium AD and
The graph below shows the AD-AS diagram for the US. Suppose that the economy is initially in long-run equilibrium with the price level of 700 (Red AD and SRAS curves). Now suppose that dollar depreciates. Price Level 1200 1100- 1000 900 800 700- 600* 500 400- 300- 200- 100 HITTE 100 200 300 400 500 Real GDP As a result of this event what is the new short-run price level? 600 700 800 900 1000 1100 120 Q
The graph below shows the AD-AS diagram for Spain. All numbers are in billions. 1. What is the size of real GDP in the short-run equilibrium? answer "a". 2. What is the price level in the short-run equilibrium? answer "b". 3. What is the level of Potential GDP in Spain? answer "c".
17 01:27:36 Use the following diagrams for the U.S. economy to answer the next question. AS₁ AS₂ 这 AD Real GDP (1) AS₂ AS, * AD (3) Real GDP (2) NY AD₂ AD₁ Real GDP AD₂ Real GDP AD₁ If the economy is initially at full employment, which of the diagrams best portrays a recession resulting from a decrease in government purchases?
In the year 2023, aggregate demand and aggregate supply in the fictional country of Gurder are represented by the curves AD2023 and AS on the following graph. Suppose the natural level of output in this economy is $10 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. PRICE LEVEL 108 107 106 105 104 103 102 101 100 0 2 AD 2023 B I A 4 6 8 10 OUTPUT (Trillions of dollars) 12 AS ADB 14 AD А 16 A LRAS Outcome C (?)
In the first quarter of 2020, US real GDP declined about 9%, due to the economics shocks from the Covid 19 virus. If prices were completely flexible, and this means all prices, both inputs (such as labor), as well as output prices, what would you think would have been the drop in GDP? If prices are completely fixed, would the drop in GDP be greater or less than the flexible case? Why? If the Expenditure method of accounting for GDP, has to equal the Income Side, and the economy overproduces a particular item, say automobiles, the income side will also be higher, workers will buy the extra cars with extra income and the economy can gyrate indefinitely higher? Why or why not?
The accompanying graph displays an Aggregate Demand (AD), Aggregate Supply (AS), and Potential GDP curve. Please illustrate how stagflation can occur in this economy. Potential GDP AS AD Real GDP Price Level
Suppose that in 2011, the price of cotton, an input good, decreases in Microtania. Show how this event will change equilibrium output and price level by shifting either the SRAS or AD curve, and then answer the questions below. Did equilibrium output increase or decrease?Increase/Decrease Did equilibrium price increase or decrease?Increase/Decrease
Assume the graph represents the Japanese economy during the first quarter of 2014. Use the information from the seventh paragraph of the Washington Post article Japan Recession, Europe Stagnation Cast Pall over Global Economic Outlook to demonstrate how the policies of Prime Minister Shinzo Abe affected the economy in the subsequent quarters of 2014. The graph depicts aggregate demand (AD), short‑run aggregate supply (SRAS), and long‑run aggregate supply (LRAS). LRAS is sometimes labeled potential output.
The following graph shows the aggregate demand (AD1) and aggregate supply (AS) curves for a hypothetical economy with full-employment output of $11 trillion. PRICE LEVEL of 130 125 120 115 110 105 100 95 90 8.0 8.5 9.0 AD1 AS AD2 Macro Eq 2 9.5 10.0 10.5 11.0 11.5 12.0 REAL GDP (Trillions of dollars) Help Clear All Suppose the level of real GDP supplied by firms is $10.5 trillion and the price level is 105. In this case, the quantity of real GDP supplied is the real GDP demanded at a price level of 105, and firms will experience an unplanned in inventories. Firms will respond to the change in inventories by producing output until the economy reaches macroeconomic equilibrium at a price level of and real GDP Suppose consumers and businesses become more optimistic about future economic conditions, causing the aggregate demand curve to increase by $0.5 trillion at each price level. Use the green line (triangle symbols) to show the new aggregate demand curve (AD2). Be sure that AD2 is…

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