This graph shows the short-run aggregate supply curve (SRAS) of a hypothetical economy where the currency is the dollar. Last year, the economy was 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 point B. The price level has fallen to 135 and the quantity of real GDP supplied has fallen to $300 billion and nominal wages fell by the same percentage as the price level. Government officials are confused about why the quantity of output moved from point A to point B, and they ask you for help. PRICE LEVEL 160 155 150 145 140 135 130 125 120 0 Short-Run Aggregate Supply SRAS 100 200 300 400 500 600 700 800 REAL GDP (Billions of dollars) ? Since nominal wages fell by the same percentage as the price level, you explain that a decrease in the price level leads to in real wages.

This graph shows the short-run aggregate supply curve (SRAS) of a hypothetical economy where the currency is the dollar. Last year, the economy was 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 point B. The price level has fallen to 135 and the quantity of real GDP supplied has fallen to $300 billion and nominal wages fell by the same percentage as the price level. Government officials are confused about why the quantity of output moved from point A to point B, and they ask you for help. PRICE LEVEL 160 155 150 145 140 135 130 125 120 0 Short-Run Aggregate Supply SRAS 100 200 300 400 500 600 700 800 REAL GDP (Billions of dollars) ? Since nominal wages fell by the same percentage as the price level, you explain that a decrease in the price level leads to in real wages.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter23: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 3PA

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ans ences rations If in Year 1 the price level was 100 and real GDP was $20 trillion and in Year 2 the price level was 105 and real GDP was $21 billion, then the predominant change that occured in Year 2 was OA a decrease in aggregate demand. B. an increase (shift to the right) in short-run aggregate supply. OC. a decrease (shift to the left) in short-run aggregate supply OD. an increase in aggregate demand.
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The economy has shifted and the quantity of the real GDP supplied has increased. What has potentially happened to aggregate price levels? Potentially the price levels have increased to a higher aggregate price level and if the wages are sticky, businesses have hired more employees as labor has become cheaper. O Potentially the price levels have decreased to a lower aggregate price level and if the wages are sticky, businesses have hired more employees as labor has become cheaper. Potentially the price levels have increased to a higher aggregate price level and if the wages are sticky, businesses have fired some employees as labor has become too expensive.
1. In the diagram for this exercise, use aggregate demand and short-run and long-run aggregate supply curves to show an economy at a short-run equilibrium with a contrac- tionary gap of $0.5 trillion when potential output is $10 trillion.Then illustrate how the gap would close in the long run if the economy is self-correcting. 2. In the diagram, use aggregate demand and short-run and long-run aggregate supply curves to show an economy at a short-run equilibrium with an expansionary gap of $0.5 trillion when potential output is $10 trillion.Then illus- trate how the gap would close in the long run using an activist approach.
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