The following graphs plot the long-run equilibrium situation for an economy. The first graph plots the aggregate demand (AD) and long-run aggregatesupply (LRAS) curves. The second graph plots the long-run and short-run Phillips curves (LRPC and SRPC, respectively).PRICE LEVEL2LRAS83OUTPUT (Trillions of dollars)10ADAD0LRAS INFLATION RATE038LRPC912UNEMPLOYMENT RATE (Percent)The natural level of output is $6 trillion.15SRPC18The long-run effect of the central bank's policy isin real GDP.OSRPC-LRPCWhich of the following statements are true based on these graphs? Check all that apply.?The current quantity of output is greater than potential output.The unemployment rate is currently 9% higher than the natural rate of unemployment.Suppose the central bank of the economy pursues a policy that increases the money supply.Show the long-run effects of this policy on both of the graphs by shifting the appropriate curves.in the inflation rate,in the unemployment rate, and

Inflation is the rate of rise in prices over a provided period of time. Inflation is typically a broad estimation, such as the overall increment in prices or the increment in the cost of living in a nation.Graph 1 Graph 2Answer to the question no. 1: Option A: The natural rate of output is $6 trillion (Picture 1). Reason: The long run supply is fixed at $6 trillion. Thus, the natural rate of output is $6 trillion. It can not be changed in the long term, given the technology. Answer to question no. 2: An expantionary monetary policy is by raising the money supply. This will rise the AD from AD to AD1, but the LRSC will not change. Thus, given the supply fixed, a rise in the AD will raise the price level to P2. This will also shift the short run phllips curve upward to SRPC1. Which will rise the level of infation to i2, and the natural rate of unemployment will not change in the long term. Thus, inflation will increase, unemployment will remain unchanged, and the real GDP will remain unchanged.

Business

Economics

The following graphs plot the long-run equilibrium situation for an economy. The first graph plots the supply (LRAS) curves. The second graph plots the long-run and short-run Phillips curves (LRPC and SRPC, respectively). PRICE LEVEL 0 2 LRAS 4 18 8 OUTPUT (Trillions of dollars) 10 AD 12 AD LRAS

The following graphs plot the long-run equilibrium situation for an economy. The first graph plots the supply (LRAS) curves. The second graph plots the long-run and short-run Phillips curves (LRPC and SRPC, respectively). PRICE LEVEL 0 2 LRAS 4 18 8 OUTPUT (Trillions of dollars) 10 AD 12 AD LRAS

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Start at full-employment (FE) equilibrium with flexible wages and worker misperception of price level changes in the short run. Suppose then that we have an increase in Aggregate Demand. First, think about the short-run effects on price level (P), output level (Q), wage level (W), employment (L), and unemployment (U)? In the long run, once workers realize that there was a change in the price level, they will change the supply curve of labor. When all subsequent wage and price adjustments take place, we will be in a new long-run equilibrium. From the original full-employment (FE) equilibrium to the final one, what is the net change in the price level (P), output level (Q), the nominal wage (W), employment (L), unemployment rate (U), and the real wage (W/P)? Group of answer choices a) An increase in P, no change in Q, no change in W, an increase in L, an increase in U and no change in W/P. b) An increase in P, a decrease in Q, a decrease in W, a decrease in L, an…
Aggregate Price Level The graph below shows the long-run aggregate supply (LRAS), the short-run aggregate supply (SRAS), and aggregate demand (AD) curves for a given economy. Manipulate the curves to show the short run effect of a increase in money supply. LRAS Real GDP AD In the short-run, an increase in the money supply will result in: SRAS Interest rates... Select answer The aggregate price level... Select answer Real GDP... Select answer " イト

Price Level LRAS I о, он ог Real GDP SRAS, SRAS SRAS₂ ON=Natural Real GDP AD Refer to Figure 9-3. If the economy is in short-run equilibrium at point C, the (actual) unemployment rate is less than the natural unemployment rate. the (actual) unemployment rate is equal to the natural unemployment rate. the (actual) unemployment rate is greater than the natural unemployment rate. the relationship between the (actual) unemployment rate and the natural unemployment rate cannot be determined from the available information.
Typed plzzzz and Asap
Gg.13.
“Members of Congress are interested in increasing the minimum wage from its current rate of $7.25 an hour to $15. What effect will this have on the unemployment rate for low-skilled workers? How is this likely to impact equilibrium output and the price level in the short run?"
Suppose that the economy is depicted in the graph to the right. Using the line drawing tool, show demand-pull inflation by correctly shifting aggregate demand. Label the new line 'AD, Carefully follow the instructions above, and only draw the required objects. stion 5.1 here to search
If investment as a fraction of GDP rose substantially and then stayed at a high level, what would be the effect on aggregate supply over time? It will shift both the SRAS and LRAS right. It will shift the SRAS right, but not the LRAS. It will shift the LRAS to the left, but not the SRAS. It will shift both the SRAS and the LRAS left.
As the Federal Reserve sharply raises rates in the face if substantial inflationary pressures, economists are trying to gauge the extent to which the U.S. labor market is slowing. First, how might you try to measure labor market slack? Second, across the business cycle, describe how the gap between whatever is true unemployment, and a notion of “full” employment generally relates to inflationary pressures. Finally, relate this gap to the economy’s overall ‘output gap’ (actual GDP vs. potential GDP).
Assume that a country's economy is in equilibrium. a) () Using a correctly labeled AD/AS graph, show how an increase in the price of gasoline, an important input of production, will affect the following in the short run. (i) Real output :- (ii) Price level-Using a correctly labeled graph, show the same effect on the Phillips curve. () Central bank of the country responds to the higher price of oil by increasing the money supply. (i ) ()Explain the process by which the increase in the money supply will affect the aggregate demand in the short run. (ii) (Indicate on the AD/AS graph, how the increase in the money supply will affect real output and the price level. d) () Now assume that instead of using monetary policy in response to the gasoline price increase, the government reduces business taxes, which results in lower production costs. Using a new correctly labeled graph, show the effect of the reduction in business taxes on the following. (i) () Real output - (ii) () Price levele) (…
on Indicate whether the following factor will affect aggregate demand (AD) or aggregate supply (AS) and whether the effect would be an increase or a decrease. Then indicate what will happen to the price level and the level of Real GDP and what type of equilibrium will result assuming that the economy is initially in long-run equilibrium. a) A decrease in the nominal wage rate. b) A decrease in exports. c) A decrease in the exchange rate. d) The discovery of vast new oil field in AD no effect decrease + increase no effect AS increase no effect increase increase decrease decrease decrease Real GDP increase decrease increase increase Equilibrium recessionary gap ⇒ inflationary gap inflationary gap inflationary gap AP ? Q Fir
Price Level 4. Problems and Applications Q1 Suppose the economy is in a long-run equilibrium, as shown in the following graph. Now suppose that a stock market crash causes aggregate demand to fall. Use your diagram to show what happens to output and the price level in the short run. LRAS Quantity of Output Aggregate Supply Aggregate Demand 10 Aggregate Supply Aggregate Demand LRAS (?) As a result of this change, the unemployment rate Use the sticky-wage theory of aggregate supply to think about what will happen to output and the price level in the long run (assuming there is no change in policy). On the graph, illustrate the change that will occur in the long run.