This graph shows an increase in aggregate supply in a hypothetical economy where the currency is the dollar. Specifically, the short-run aggregate supply curve (SRAS) shifts to the right from SRAS₁ to SRAS₂, causing the quantity of output supplied at a price level of 125 to rise from $250 billion to $350 billion. PRICE LEVEL 200 175 150 125 100 75 50 25 0 0 50 100 150 200 250 REAL GDP (Billions of dollars) 300 I I 350 SRAS₁ 400 SRAS 2

This graph shows an increase in aggregate supply in a hypothetical economy where the currency is the dollar. Specifically, the short-run aggregate supply curve (SRAS) shifts to the right from SRAS₁ to SRAS₂, causing the quantity of output supplied at a price level of 125 to rise from $250 billion to $350 billion. PRICE LEVEL 200 175 150 125 100 75 50 25 0 0 50 100 150 200 250 REAL GDP (Billions of dollars) 300 I I 350 SRAS₁ 400 SRAS 2

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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:
By using aggregate supply and demand curves to illustrate your points, discuss the impacts of the following events on the price level and on equilibrium GDP (Y) in the short run: a. A tax cut holding government purchases constant with the economy operating at near full capacity b. An increase in the money supply during a period of high unemployment and excess industrial capacity c. An increase in the price of oil caused by a war in the Middle East, assuming that the Central Bank attempts to keep interest rates constant by accommodating inflation d. An increase in taxes and a cut in government spending supported by a cooperative Fed acting to keep output from falling
The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $600 billion. Suppose a stock market boom increases household wealth and causes consumers to spend more. 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. 240 AS 200 AD 160 AS 120 80 AD 40 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to the price level people expected and the quantity of output to the natural level of output. The stock market boom will cause the unemployment rate to the natural rate of unemployment in the short run. Again, the following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $600 billion, before the increase in consumption spending associated with…
The graph below shows the AD-AS diagram for the US. Suppose that the economy is initially in long-run equilibrium with the price level of 700 (Red AD and SRAS curves). Now suppose that dollar depreciates. Price Level 1200 1100- 1000 900 800 700- 600* 500 400- 300- 200- 100 HITTE 100 200 300 400 500 Real GDP As a result of this event what is the new short-run price level? 600 700 800 900 1000 1100 120 Q
In the year 2023, aggregate demand and aggregate supply in the fictional country of Gurder are represented by the curves AD2023 and AS on the following graph. Suppose the natural level of output in this economy is $10 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. PRICE LEVEL 108 107 106 105 104 103 102 101 100 0 2 AD 2023 B I A 4 6 8 10 OUTPUT (Trillions of dollars) 12 AS ADB 14 AD А 16 A LRAS Outcome C (?)
The graph below is associated with a hypothetical country. Consider a decrease in aggregate demand (AD). Specifically, aggregate demand shifts to the left from AD₁ to AD2, causing the quantity of output demanded to fall at each price level. For instance, at a price level of 140, output is now $200 billion, where initially it was $300 billion. PRICE LEVEL 170 160 150 140 130 120 110 100 90 0 100 +-+ I I 200 300 400 500 OUTPUT (Billions of dollars) AD1 AD2 600 700 800 ?
Real aggregate expenditure, AE (trillions of dollars) 0 45° Y=AE AE Real GDP, Y (trillions of dollars) Refer to Figure 23-1. If the economy is at point L, what will happen? Inventories have fallen below their desired level, and firms decrease production. Inventories have risen above their desired level, and firms decrease production. Inventories have fallen below their desired level, and firms increase production. Inventories have risen above their desired level, and firms increase production.
The aggregate demand and the aggregate supply model allows us to examine how a variety of events can affect the economy. Explain the shape of aggregate demand curve. How do Classical and Keynesian economists differ in their view of the aggregate supply curve? In your own words, discuss which of the four sources identified with aggregate demand has caused a change in the aggregate demand for a product or service you or your employer use. Share the effect that source has had on how you or your employer contribute to the measurement of aggregate demand.
An increase in government spending would affect GDP if ? the long-run aggregate supply is vertical the short-run aggregate supply is vertical the short-run aggregate supply is upward sloping the short-run aggregate supply is horizontal
Decreases in the NAIRU represent a: rightward shift in the aggregate demand curve. leftward shift of the long-run aggregate supply curve. leftward shift in the aggregate demand curve. rightward shift of the long-run aggregate supply curve.
In the short run, the increase in foreign spending on domestic goods associated with expansion abroad causes the price level to the price level people expected and the quantity of output to the natural level of output. The economic prosperity abroad will cause the unemployment rate to the natural rate of unemployment in the short run. Again, the following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $600 billion, before the increase in foreign spending on domestic goods associated with expansion abroad. During the transition from the short run to the long run, price-level expectations will and the curve will shift to the
If the aggregate price level rises, all else equal, consumers will: need more money to purchase the same basket of goods, which will lead to an increase in the demand for money, in turn pushing up interest rates and hence reducing the quantity of aggregate output demanded via a decrease in investment demand. demand less aggregate output at all price levels, resulting in a rightward shift right of the AD curve. find their purchasing power has increased and will purchase more goods and services, leading to an increase in aggregate output demanded. need less money to purchase the same basket of goods, which will lead to a decrease in the demand for money, in turn pushing down interest rates and hence increasing the quantity of aggregate output demanded via an increase in investment demand.