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 110. 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: 100, 105, 110, 115, and 120. PRICE LEVEL 125 120 115 110 105 100 95 90 85 80 75 0 10 20 0 30 40 50 60 70 OUTPUT (Billions of dollars) 80 90 100 AS LRAS (?)

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 110. 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: 100, 105, 110, 115, and 120. PRICE LEVEL 125 120 115 110 105 100 95 90 85 80 75 0 10 20 0 30 40 50 60 70 OUTPUT (Billions of dollars) 80 90 100 AS LRAS (?)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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An economy is characterized by the following desired consumption and investment functions: C = 543 + 0.72Y and I = 752. Part (a): Calculate the equilibrium level of GDP and the multiplier for this economy. Round your answer for the multiplier to 3 decimal places. Example: 0.001 Part (b): Suppose the level of desired investment changed to I = 731, with no change to desired consumption. What is the new equilibrium GDP level for the economy? Part (c): Using 1 to 2 sentences, describe how this change to desired investment affects the AE function graphically. Part (d): Suppose the desired investment levels returns to I = 752, but now consumers spend 86 cents of every dollar earned. What is the new equilibrium GDP level for the economy? Part (e): Using 1 to 2 sentences, describe how this change to consumption habits affects the AE function graphically.
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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…
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