This graph shows the short-run aggregate supply curve (SRAS) of a hypothetical economy where the currency is the dollar. Last year, the economywas producing at point A. The price level was 145 and the quantity of real GDP supplied was $500 billion. This year, the economy is producing at pointB. The price level has fallen to 135 and the quantity of real GDP supplied has fallen to $300 billion and nominal wages were constant as the price levelchanged. Government officials are confused about why the quantity of output moved from point A to point B, and they ask you for help.Short-Run Aggregate Supply160SRAS155150145140135130125120100200300400500600700800REAL GDP (Billions of dollars)Since nominal wages were constant as the price level changed, you explain that a decrease in the price level leads toin real wages.This, in turn, leads to which of the following?O Workers mistakenly believe that their real wages have risen and supply more labor.O Firms hire fewer workers.Workers mistakenly believe that their real wages have fallen and supply less labor.O Firms hire more workers.Ultimately, a decrease in the price level leads tov being produced in the short run.PRICE LEVEL

In an economy, any change in labor market will lead affect the totale production produced by the…

Answered: This graph shows the short-run…

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 technological improvement raises productivity. On the following graph indicate the short run and long run effects of this change on the economy, assuming policymakers take no action. In the short run, the price level blanks and output blank. In the long run, the price level will be blank and output will be blank compared to the initial equilibrium prior to the change
The following graph shows the aggregate demand curve in a hypothetical economy. Assume that the economy's money supply remains fixed. PRICE LEVEL (CPI) 160 150 140 130 120 110 100 90 80 0 Aggregate Demand 100 200 300 400 500 600 REAL GDP (Billions of dollars) 700 800 ?
How will an increase in aggregate demand most likely affect the economy in the long run? Because output is above full-employment level of output, unemployment is below the natural rate of unemployment. The nominal wage will be pushed upward thus increasing the cost of production and aggregate supply decreases. Real GDP returns to full employment and the price level decrease. Because output is below full-employment level of output, unemployment is above the natural rate of unemployment. The nominal wage will be pushed downwards thus reducing the cost of production and aggregate supply increases. Real GDP returns to full employment and the price level increase. Because output is above full-employment level of output, unemployment is below the natural rate of unemployment. The nominal wage will be pushed upward thus increasing the cost of production and aggregate supply decreases. Real GDP returns to full employment and the price level increases Because output is above full-employment…
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
Interpret the change you drew on the previous graph by filling in the blanks in the following paragraph: The lower-than-expected price level causes firms to earn more profit than they expected on each unit of output they produce, and, therefore, they decrease their production level. At the same time, the real value of wages and other resource prices are lower than workers and firms expected when they signed long-term contracts. As a result, the economy as a whole produces at a level below the unemployment rate is lower than its natural rate. its potential output, and Now, suppose prices remain lower than expected. As a result, in the next round of labor negotiations, unions accept lower wages for their members. The following graph shows the potential output for this economy as well as the same initial short-run aggregate supply curve as in the first graph. Shift one or both of these lines to illustrate how the economy adjusts to a new long-run equilibrium. PRICE LEVEL 180 SRAS 150…
The following events have occurred at times in the history of the United States: 1. The world economy goes into an expansion. 2. U.S. businesses expect future profits to rise. 3. The government increases its expenditure on goods and services in a time of war or increased international tension. Explain the combined effects of these events on U.S. real GDP and the price level, starting from a position of long-run equilibrium. The graph shows an economy in long-run equilibrium. The world economy goes into an expansion, U.S. businesses expect future profits to rise, and the government increases its expenditure on goods and services in a time of war or increased international tension. Draw one new curve that shows the combined effect of the three events. Label it. Draw a point at the new short-run macroeconomic equilibrium. 140- 130- Price level (GDP deflator, 2012=100) 120- 110- 100- 90- 80- 18.0 LAS SAS AD G 19.0 20.0 21.0 Real GDP (trillions of 2012 dollars) Denonh: the ohiarte conciliad…
Use the model of aggregate demand and short-run aggregate supply to explain how each of the following would affect real GDP and the price level in the short run. a reduction in government purchases an increase in nominal wages a major improvement in technology imposing in tariff barriers to imports
Why the aggregate demand curve slopes downward The graph below shows the aggregate demand (AD) curve for a hypothetical economy. At point X, the quantity of output demanded is $300 billion, and the price level is 140. Moving down along the AD curve from point X to point Y, the quantity of output demanded rises to $500 billion, and the price level falls to 120. As the price level falls, the cost of borrowing money will (REMAIN THE SAME or RISE or FALL), causing the quantity of output demanded to (REMAIN THE SAME or RISE or FALL). This phenomenon is known as the (EXCHANGE RATE or INTEREST RATE or WEALTH) effect. Additionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar to (RISE or FALL) in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore (RISE or FALL or REMAIN THE SAME), and the number of foreign products purchased by domestic consumers and firms (imports)…
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 ?
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:
Consider the economy represented by the aggregate supply-aggregate demand graph below, which is initially at a short-run equilibrium at point A. Suppose taxes increase. How would this affect the economy? Price level. (GDP deflator, 2009 = 100) p1 LRAS1 GDP* A GDP1 SRAS1 Real GDP (trillions of 2009 dollars) Economic growth will decrease. Inflation will increase. Unemployment will decrease. Employment will increase. AD1
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…

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