Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. ? Price Level LRAS Aggregate Supply Aggregate Demand Quantity of Output Now adjust the graph to show the new long-run equilibrium. Aggregate Demand Aggregate Supply What causes the economy to move from its short-run equilibrium to its long-run equilibrium? O The government increases taxes to curb aggregate demand. O Nominal wages, prices, and perceptions adjust upward to this new price level. O The government increases spending to increase aggregate demand. O Nominal wages, prices, and perceptions adjust downward to this new price level. Which of the following is true according to the sticky-wage theory of aggregate supply as a result of the decrease in the money supply? Check all that apply. Nominal wages at the initial equilibrium are equal to nominal wages at the new short-run equilibrium.

Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium. ? Price Level LRAS Aggregate Supply Aggregate Demand Quantity of Output Now adjust the graph to show the new long-run equilibrium. Aggregate Demand Aggregate Supply What causes the economy to move from its short-run equilibrium to its long-run equilibrium? O The government increases taxes to curb aggregate demand. O Nominal wages, prices, and perceptions adjust upward to this new price level. O The government increases spending to increase aggregate demand. O Nominal wages, prices, and perceptions adjust downward to this new price level. Which of the following is true according to the sticky-wage theory of aggregate supply as a result of the decrease in the money supply? Check all that apply. Nominal wages at the initial equilibrium are equal to nominal wages at the new short-run equilibrium.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose now the government passes a law that significantly increases the minimum wage. This change in policy will cause the natural rate of unemployment to which will: • Shift the long-run aggregate supply curve to the right O Not impact the long-run aggregate supply curve O Shift the long-run aggregate supply curve to the left Complete the following table by determining how each event impacts the position of the long-run aggregate supply (LAS) curve. Direction of LRAS Curve Shift A government-sponsored training program increases the skill level of the workforce. Many workers leave to pursue more lucrative careers in foreign economies. A scientific breakthrough significantly increases food production per acre of farmland.
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Other things being equal, what would happen to aggregate demand if the federal government decreased military purchases and state and local governments increased their road building budgets at the same time? O aggregate demand (AD) would increase, because only federal government purchases affect AD. aggregate demand (AD) would decrease, because only state and local government purchases affect AD. aggregate demand (AD) would increase if the change in federal purchases were smaller than the change in state and local purchases. O aggregate demand (AD) would decrease if the change in federal purchases was smaller than the change in state and local purchases.
Note: Line segments will automatically connect the points. PRICE LEVEL (Billions of dollars) 200 160 120 0 80 160 240 REAL GDP (Index numbers) The equilibrium price level is 320 400 Initial AD The change in government spending the multiplier effect. SRAS New AD ✓, and the equilibrium level of real output is Suppose that the government spending increases by $16 billion and the expenditure multiplier in this economy is 5. On the previous graph, use the purple points (diamond symbols) to illustrate the effect of the increase in government spending on the aggregate demand (New AD) curve. the equilibrium level of real output by . The price level increase
6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output that firms supply can deviate from the natural level of output if the actual price level in the economy deviates from the expected price level. Several theories explain how this might happen. For example, the sticky-wage theory asserts that output prices adjust more quickly to changes in the price level than wages do, in part because of long-term wage contracts. Suppose a firm signs a contract agreeing to pay its workers $15 per hour for the next year, based on an expected price level of 100. If the actual price level turns out to be 90, the firm's output prices will , and the wages the firm pays its workers will remain fixed at the contracted level. The firm will respond to the unexpected decrease in the price level by v the quantity of output it supplies. If many firms face similarly rigid wage contracts, the unexpected decrease in the price level causes the quantity of output…
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Starting at long run equilibrium, ceteris paribus, an increase in the costs of widely used factors of production would most likely O Increase short run aggregate supply and create an inflationary gap. O Decrease long run aggregate supply and create a recessionary gap. O Decrease short run aggregate supply and create a recessionary gap. O Decrease aggregate demand and create a recessionary gap.