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

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The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to $500 billion. 170 100 180 140 130 120 110 AD 100 00 100 200 300 400 B00 700 OUTPUT (Billians of dollars) As the price level falls, the cost of borrowing money will , causing the quantity of output demanded to Additionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar to in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore and the number of foreign products purchased by domestic consumers and firms (imports) will Net exports will therefore causing the quantity of domestic output demanded to
Using an AD/AS diagram (starting from long-run/full employment equilibrium), graphically show and verbally describe how each of the following events would affect the U.S. economy's equilibrium real GDP and price level. a. Discovery and implementation of new technology b. Mexico's economic growth increases faster than ours c. There is a general increase in the price of raw materials e. The cost of labor (wages) rises g. The price of oil is expected to fall d. The number of workers in the labor force decreases due to pandemic retirements/death f. A new Congress decreases government spending h. Consumer confidence falls
suppose there is a permanent upward shift of the Federal Reserve’s reaction function.What will be the short-run effect of the shift in the reaction function on GDP?Describe briefly how GDP returns to its potential level.
Economics
Suppose that the economy is depicted in the graph to the right. 160- a. The current equilibrium price level and output level respectively are: and S trillion. (Enter your response as a whole number.) SRAS 150- LRAS 140- 130- 120- O 110- 100- 소 90- 80- 70- AD 60- 50- 40- 10' 12' 14 16 18 20 Real GDP ($ trillions) Price level
Interpret the change you drew on the previous graph by filling in the blanks in the following paragraph: The lower-than-expected price level causes firms to earn more profit than they expected on each unit of output they produce, and, therefore, they decrease their production level. At the same time, the real value of wages and other resource prices are lower than workers and firms expected when they signed long-term contracts. As a result, the economy as a whole produces at a level below the unemployment rate is lower than its natural rate. its potential output, and Now, suppose prices remain lower than expected. As a result, in the next round of labor negotiations, unions accept lower wages for their members. The following graph shows the potential output for this economy as well as the same initial short-run aggregate supply curve as in the first graph. Shift one or both of these lines to illustrate how the economy adjusts to a new long-run equilibrium. PRICE LEVEL 180 SRAS 150…
# I am guessing, the price of imports will decrease is wrong.
18. Use the AD/AS model to illustrate the following. Draw 6 graphs by hand. Show how the AD or the AS curve shift and in what direction (left or right). Also state what happens to equilibrium real GDP (Y), employment, and the equilibrium price level. [Note: Use the SRAS curve, not the LRAS.] a. an increase in government spending and/or transfer payments b. restrictive fiscal policy c. expansive monetary policy d. increase in investment according to Keynesians e. increase in investment according to supply-side economists f. a stock market crash
Which of the following would NOT cause a shift in AD? Select one: a. A reduction in interest rates b. A fall in the cost of production c. A reduction in income tax d. An increase in government spending
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
7. The long-run aggregate supply curve and short-run adjustments Suppose an economy's short-run aggregate supply curve (SRAS), current equilibrium aggregate price level (P₁), and real GDP (Q1) are shown on the graph that follows. The economy currently has Natural Real GDP (QN) of $6 trillion. Use this information to place the orange long-run aggregate supply curve (LRAS, square symbols) in the correct position on the graph. 20 PRICE LEVEL 0 2 4 6 Q₁ REAL GDP (Trillions of dollars) 8 SRAS 10 LRAS
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…

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