Step 2: Two PPFSConsider the following scenario: The economy is in long-run equilibrium, as short-run equilibrium output is equal to the Natural Real GDP of $6trillion.The following graph shows two production possibilities frontiers (PPFS) for the economy. The PPF closer to the origin (blue curve) is the economy'sinstitutional PPF, and the PPF farther from the origin (purple curve) is the economy's physical PPF.Place the grey point (star symbol) on one of the black points (plus symbol) to indicate the state of the economy when it is operating at the short-run equilibrium described above.ALL OTHER GOODS (Thousands of units)109w0Physical PPF0 1FInstitutional PPF2+Two PPFs+ED+00B3 4 5 6 7GOOD X (Thousands of units)In time, wages and costs of production will likely8910State of Economy? Step 1: States of the EconomyThe following graph shows the aggregate demand curve (AD), the short-run aggregate supply curve (SRAS), and the long-run aggregate supplycurve (LRAS) of an economy.PRICE LEVEL200180160140120100808604020001Step 2: Two PPFsADReal GDP and Natural Real GDPSRAS2LRAS345 6 7REAL GDP (Trillions of dollars)The short-run equilibrium output level is $6 trillion89 10(?), and the economy is operatingexists in the labor market of this economy.Consider the following scenario: The economy is in long-run equilibrium as short-run sailAs a result,with an inflationary gapwith a recessionary gapin a long-run equilibrium the Natural Real GDP of $6

The level of production produced by enterprises and the price level over the long term are related…

Answered: The short-run equilibrium output level…

The short-run equilibrium output level is $6 trillion exists in the labor market of this economy. , and the economy is operating with an inflationary gap . As a result,

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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a. Potential GDP (LAS) is $200 then there is a(n) [(Click to select) b. Potential GDP (LAS) is $800 then there is a(n) [(Click to select) c. Potential GDP (LAS) is $850 then there is a(n) [(Click to select) gap of $ gap of $ gap of $
what are the perspectives of Keynes and Say regarding employment equilibrium and government intervention in the economy.
Which of the following is an effect of deflation on debt? a) Debt becomes easier to repay b) Debt becomes more burdensome c) Debt levels remain unchanged d) Debt becomes irrelevant
Consider a closed Keynesian economy. Draw an IS-LM diagram and mark the initial point as "0". Then: (A) Assume firms become more pessimistic about the future marginal product of capital. Graph the impact in the ISLM diagram (point “A") and explain the short run effects on Y, r, and P. (B) Explain how the economy will adjust in the longer run. Determine the long run effects on Y, r, and P. Mark the equilibrium as "B". (C) Suppose central bank responds to the disturbance in (A) in a way designed to keep output at its initial level. Explain what policy action the central bank must take. Mark the resulting equilibrium as “C". Organize your answers as shown below: ISLM diagram Table with directional answers: Direction of change |(up,down, unchanged, uncertain) Part (A) Part (B) Output Real interest rate Price level [If you entered "uncertain", explain here.] (A) Explain: (B) Explain: (C) Policy Action: (C) Explain:
Complete the following table by filling in the blanks. (Hint: In the table, Q Real GDP and QN Natural Real GDP.)State of the Economy QQN QQNIs the Economy in a Recessionary Gap, Inflationary Gap, or Long- Run Equilibrium?Does Equilibrium, a Shortage, or a Surplus Exist in the Labor Market?Will Wages Fall, Rise, or Remain Unchanged?Will the SRAS Curve Shift Right, Left, or Remain Unchanged?Is the Economy Above, Below, or on Its Institutional PPF?QQN
Demand–pull inflation occurs when increases until equilibrium output exceeds the full employment level.
The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $300 billion. Suppose a stock market boom increases household wealth and causes consumers to spend more. Using the graph, 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. PRICE LEVEL 240 200 160 120 80 40 AS AD AD D AS ?
An economy is at full employment. Which of the following can create an inflationary gap. Group of answer choices An increase in nominal wages. An increase in income taxes. An increase in government spending. A decrease in government spending.
The figure below is a part of the AD-AS model as a description of the current situation of an economy. PA=$10 P YA=4000 Y a) Find the short-run equilibrium (i.e. the real output and the price level thereof) of this economy. b) If the natural level of output is 3500, which one will be higher, the unemployment rate at point A, or the natural unemployment rate? Explain. c) Give two reasons as to why the short-run aggregate supply is upward sloping. d) Suppose the government takes no action about the situation indicated above. Explain, with the help of a figure properly labeled, what will happen in this economy in the long run. e) Describe the two kinds of macroeconomic policies that can be used in the situation described before part c). Indicate clearly in your description whether each policy is to the aggregate demand or aggregate supply or Further, give reason(s) as to why the government may want to use these policies rather than doing nothing.
The following graph represents the short-run aggregate supply curve (SRAS) based on an expected price level of 120. The economy's full- employment output level is $9 trillion. Major unions across the country have recently negotiated three-year wage contracts with employers. The wage contracts are based on an expected price level of 120, but the actual price level turns out to be 160. Show the short-run effect of the unexpectedly high price level by dragging the curve or moving the point to the appropriate position. PRICE LEVEL (CPI) 240 200 160 40 0 0 3 SRAS[120] 6 9 12 REAL GDP (Trillions of dollars) 15 18 SRAS[120] 0 (?) Interpret the change you drew on the previous graph by filling in the blanks in the following paragraph:
Suppose that the full employment level of nominal GDP rises in one year from $16.8 to $18.0 trillion. The long-run equilibrium price level, however, remains unchanged at 120. By how much (in real dollars) has the long-run aggregate supply curve shifted to the right from one year to the next? $ trillion. (Round your answer to two decimal places.)
Explain each of the following in terms of how changes in the price level and the effect on Aggregate Quantity Demanded: The Real Balances Effect (in your text this is referred to as the Wealth Effect) The Interest Rate effect The Foreign Purchases effect (in your text this is referred to as the Foreign Prices effect)