Use the figure to answer the following questions. Assume that the economy initially is operating at price level 120 and real output level$870. This output level is the economy's potential (full-employment) level of output. Next, suppose that the price level rises from 120 to130.160AS, AS,150AS,14013012011010090810 830 850 870 890 910 930 950Real output (dollars)Activate WiPrice level Real output (dollars)Instructions: Enter your answers as a whole number.a. By how much will real output increase in the short run?$In the long run?b. Instead, now assume that the price level drops from 120 to 110. Assuming flexible product and resource prices, by how much will realoutput fall in the short run?$In the long run?c. What is the long-run level of output at each of the three price levels shown?

Use the figure to answer the following questions. Assume that the economy initially is operating at price level 120 and real output level $870. This output level is the economy's potential (full-employment) level of output. Next, suppose that the price level rises from 120 to 130. 160 AS, AS, 150 AS, 140 130 120 Price level

Use the figure to answer the following questions. Assume that the economy initially is operating at price level 120 and real output level $870. This output level is the economy's potential (full-employment) level of output. Next, suppose that the price level rises from 120 to 130. 160 AS, AS, 150 AS, 140 130 120 Price level

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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12. Assume that an economy operates according to the sticky-wage model. The nominal wage was set to make labor supply and labor demand equal when the expected price level equaled 120 (as measured by the consumer price index). a. Use a graph of the labor market to illustrate what happens to the quantity of labor employed if the actual price level over the time period when wages are stuck equals 110. b. Use a graph of the production function to illustrate how the quantity of output produced changes if the actual price level equals 110 when the expected price level is 120. c. Given the unexpectedly low price level, will this economy be operating above, below, or at the natural rate?
11. Suppose Ali calculates his permanent income by adaptive expectations. In year 2020 Ali's permanent income was 64,000, and in year 20021 his consumption is 48,000. Assume short-run marginal to consume is 0.164, and long-run marginal to consume is 0.82. What is his actual income in year 2021? • a Approximately 24,488 Approximately 33.472 Approximately 34,840 Approximately 36,683 Approximately 42.640 None of the above is correct
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Consider the following AD-AS graph of country H. Price level (P) LL OF; E OF; A O B; C O B; A OB; E F LRAS E A D B SRAS3 AD₁ SRAS₁ SRAS2 AD2 Real GDP (Y) Country H is currently at point A. Consumer confidence increases and households increase consumption, then in the short run country H will move to point and in the long to point
A The old price level still remains unchanged. Which of the below graphs is the correct depiction of the change in the previous two questions? P P (b) (a) P AS AS1 ASASO P P YB YA (c) P Y P YC➡YD Y (d) P AD1 ADO ADO AD YF YE Y YG YH Y - B Which points (or what distance) demonstrate the disequilibrium between the expenditure and output on the graph you chose? C Now the markets suggest a new price level at which output will equal expenditure. Graph an AS/AD and in it show with an arrow how the real balances effect, the interest rate effect, and the foreign effect will adjust the price level to match expenditure to output. D Now on a separate graph show how the worker cost effect will drive firms to hire or fire workers so that their output matches the expenditure.
33. Refer to Figure 4. As the_____decreases, the amount of ____demanded by all sectors of the economy_____
Which of the following would cause the Aggregate Supply curve to move from AS to AS2 in the graph below? A) A general increase in energy and labor cost for businesses. B) A general decrease in labor cost for businesses. C) An increase in productivity. D) A federal government increase in spending.
Price Level LAS SAS, SAS, AD SAS, AD, AD, Real Output Refer to the graph. Suppose the economy is at SAS, and AD₂. What is a possible way the economy can return to potential output? What dynamic price level feedback effect could prevent the return to potential output? How would the dynamic price level feedback effect show up in the graph? O A decrease in asset prices in the economy; a decrease in asset prices would further decrease AD; a shift in AD from AD2 to AD3 O A decrease in material costs in the economy; a decrease in material costs would decrease AD; a shift in AD from AD2 to AD1 A decrease in wages in the economy; a decrease in wages would further decrease AD; a shift in AD from AD2 to AD3 A decrease in wages in the economy; a decrease in wages would further decrease AD; a shift in AD from AD2 to AD1