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.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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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 below the price level
that people expected.
Transcribed Image Text: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 below the price level that people expected.
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