9. Economic fluctuations IIThe following graph shows the short-run aggregate supply curve (AS), the aggregate demand curve (AD), and the long-run aggregate supply curve(LRAS) for a hypothetical economy. Initially, the expected price level is equal to the actual price level, and the economy is in long-run equilibrium atits natural level of output, $100 billion.Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs ofproducing goods and services in this economy.Use the graph to help you answer the questions about the short-run and long-run effects of the increase in production costs that follow. (Note: Youwill not be graded on any adjustments made to the graph.)Hint: For simplicity, ignore any possible impact of the severe weather on the natural level of output.PRICE LEVEL1201151101051009590LRASASADAD2 4 2 4LRAS PRICE LEVEL1201151101051009590858080 85LRASASAD90 95 100 105 110 115OUTPUT (Billions of dollars)1206 2 4 2 4 3The short-run economic outcome resulting from the increase in production costs is known asNow suppose that the government immediately pursues an accommodative policy by increasing government purchases in response to the short-runeconomic impact of the severe weather.In the long-run, when the government pursues accommodative policy, the output in the economy will be $will bebillion billion and the price level

This can be defined as a concept that shows the level of output in a market or economy where the…

The short-run economic outcome resulting from the increase in production costs is known as Now suppose that the government immediately pursues an accommodative policy by increasing government purchases in response to the short-run economic impact of the severe weather. In the long-run, when the government pursues accommodative policy, the output in the economy will be $ will be billion billion and the price level

The short-run economic outcome resulting from the increase in production costs is known as Now suppose that the government immediately pursues an accommodative policy by increasing government purchases in response to the short-run economic impact of the severe weather. In the long-run, when the government pursues accommodative policy, the output in the economy will be $ will be billion billion and the price level

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question 2 Refer to the information provided in Figure 23.9 below to answer the question(s) that follow. Aggregate expenditures ($ millions) 225 200 175 150 45° AE 100 200 300 Aggregate output ($ millions) Figure 23.9 a) Refer to Figure 23.9. Write the equation for the aggregate expenditure function (AE). Show your work. b) Refer to Figure 23.9. What is the equilibrium level of output in this economy? State the equilibrium condition used to determine this. c) Explain the forces that maintain/drive the economy to this equilibrium by considering what will happen at the following two levels of output, $300 million and $100 million. You will need to discuss changes in investment through unplanned inventories and the response of output. d) Refer to Figure 23.9. How will equilibrium aggregate expenditure and equilibrium aggregate output change as a result of a decrease in investment by $20 million? e)The interest rate is an exogenous factor that effects the level of investment in an economy.…
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