**Hydraulic Fracturing and the AD/AS Model**To solve the following problem, use the Aggregate Demand/Aggregate Supply (AD/AS) model. You are expected to:1. **Draw and Explain with AD/AS Model** **Problem Context:** Hydraulic fracturing (fracking) has the potential to significantly increase the amount of natural gas produced in the United States. Assume a large percentage of factories and utility companies use natural gas. **Scenarios:** - **Scenario A:** The economy is operating at the full employment level of output. - **Scenario B:** The economy is operating below full employment.**Analysis Using the AD/AS Model:**1. **Scenario A: Full Employment** - **Output:** At full employment, an increase in natural gas supply due to fracking reduces production costs for factories and utilities, potentially increasing output if resources are reallocated efficiently. - **Price Level:** The increased supply could lead to lower energy prices, decreasing overall price levels. - **Employment:** Employment should remain stable as this scenario assumes full employment is maintained, though sectoral shifts may occur.2. **Scenario B: Below Full Employment** - **Output:** The increase in natural gas availability can boost production as lower energy costs enable firms to increase output. - **Price Level:** Similar to Scenario A, the price level is likely to decrease due to reduced energy costs. - **Employment:** Employment is expected to rise as firms expand production to meet increased demand from lower prices.In both scenarios, the AD/AS model helps illustrate the impact of fracking on macroeconomic variables such as output, price level, and employment in the context of varying economic conditions.

The gross domestic product (GDP) of an economy is the entire quantity that a country produces and…

Use AD/AS model to solve the following problem. You are expected to: 1. DRAW and explain with AD/AS model.Hydraulic fracturing (fracking) has the potential to significantly increase the amount of natural gas produced in the United States. Assume a large percentage of factories and utility companies use natural gas. In the following two scenarios, what will happen to output, the price level, and employment as fracking becomes more widely used? Scenario A: the economy is operating at full employment level of ouptput. Scenario B: The economy is operating below full employment.

Use AD/AS model to solve the following problem. You are expected to: 1. DRAW and explain with AD/AS model.Hydraulic fracturing (fracking) has the potential to significantly increase the amount of natural gas produced in the United States. Assume a large percentage of factories and utility companies use natural gas. In the following two scenarios, what will happen to output, the price level, and employment as fracking becomes more widely used? Scenario A: the economy is operating at full employment level of ouptput. Scenario B: The economy is operating below full employment.

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

**Hydraulic Fracturing and the AD/AS Model**

To solve the following problem, use the Aggregate Demand/Aggregate Supply (AD/AS) model. You are expected to:

1. **Draw and Explain with AD/AS Model**

**Problem Context:**
Hydraulic fracturing (fracking) has the potential to significantly increase the amount of natural gas produced in the United States. Assume a large percentage of factories and utility companies use natural gas.

**Scenarios:**

- **Scenario A:** The economy is operating at the full employment level of output.
- **Scenario B:** The economy is operating below full employment.

**Analysis Using the AD/AS Model:**

1. **Scenario A: Full Employment**
- **Output:** At full employment, an increase in natural gas supply due to fracking reduces production costs for factories and utilities, potentially increasing output if resources are reallocated efficiently.
- **Price Level:** The increased supply could lead to lower energy prices, decreasing overall price levels.
- **Employment:** Employment should remain stable as this scenario assumes full employment is maintained, though sectoral shifts may occur.

2. **Scenario B: Below Full Employment**
- **Output:** The increase in natural gas availability can boost production as lower energy costs enable firms to increase output.
- **Price Level:** Similar to Scenario A, the price level is likely to decrease due to reduced energy costs.
- **Employment:** Employment is expected to rise as firms expand production to meet increased demand from lower prices.

In both scenarios, the AD/AS model helps illustrate the impact of fracking on macroeconomic variables such as output, price level, and employment in the context of varying economic conditions.

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