Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Question
Chapter 10, Problem 11CQ
(a)
To determine
Illustrate the graph of the full employment in the aggregate
(b)
To determine
Illustrate the graph of an economic boom in the aggregate demand and supply model.
(c)
To determine
Illustrate the graph of a recession in the aggregate demand and supply model.
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What is the relationship among the AD, SRAS and LRAS curves when the economy is in macroeconomic equilibrium?
Assume that the United States'
macroeconomic equilibrium is equal to the
potential GDP. Americans are becoming
more cautious with their household
spending due to the uncertainty of the
presidency of Donald Trump.
Using the AD-AS model, explain carefully
the immediate and long-term effects of the
event on the economy. Draw the
appropriate AD-AS diagram to support
your explanation.
Construct the AD, SRAS, and LRAS curves for an economy experiencing
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3. a recession.
What will happen in each case if it's only temporary? What will happen in each case if it's permanent?
Chapter 10 Solutions
Economics: Private and Public Choice (MindTap Course List)
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Similar questions
- Describe the differences between recessionary and inflanationary gaps.arrow_forwardWhich of the following would NOT cause a shift in AD? Select one: a. A reduction in interest rates b. A fall in the cost of production c. A reduction in income tax d. An increase in government spendingarrow_forwardComplete the Chart - Identify the impact of each of the following on AD or ASarrow_forward
- Help mearrow_forwardAssume there is a particular short-run aggregate supply curve for an economy and the curve is relevant for several years. Use the AD-AS analysis to show graphically why higher rates of inflflation over this period would be associated with lower rates of unemployment, and vice versa. What is this inverse relationship called?arrow_forwardUse the AD - AS model in the figure below to answer the following questions. Suppose the economy is currently experiencing an inflationary gap, without any government policy intervention, the economy would move from ◻ a) C to D b) B to A c) C to B d) A to E e) E to Aarrow_forward
- Explain and illustrate graphically recessionary and inflationary gaps.arrow_forwardSuppose concerns about the size of the federal budget deficit lead the U.S. Congress to cut all funding for research and development for ten years. Assuming this has an impact on technology growth, what does the AD/AS model predict would be the likely effect on equilibrium GDP and the price level?arrow_forwardUsing an AD/AS diagram (starting from long-run/full employment equilibrium), graphically show and verbally describe how each of the following events would affect the U.S. economy's equilibrium real GDP and price level. a. Discovery and implementation of new technology b. Mexico's economic growth increases faster than ours c. There is a general increase in the price of raw materials e. The cost of labor (wages) rises g. The price of oil is expected to fall d. The number of workers in the labor force decreases due to pandemic retirements/death f. A new Congress decreases government spending h. Consumer confidence fallsarrow_forward
- The imaginary country of Harris Island has the aggregate supply and aggregate demand curves as shown in Table below. Price Level 100 120 140 160 180 AD 700 600 500 400 300 AS 200 325 500 570 620 a. Plot the AD/AS diagram with the axes labeled. Identify the equilibrium. b. Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Identify the new aggregate equilibrium. c. How will the shift in AD affect the original output, price level, and employment?arrow_forwardSuppose, initially the Australian economy is at full employment (in other words the economyis at the potential GDP). Using AD-AS model, explain how would each of the following eventsaffect the economy both in the immediate and in the long term. An increase in consumer confidence.arrow_forwardFrom 1/1/2020 to 7/1/2020, real GDP decreased but the GDP deflator stayed approximately the same (thus, treat it as the same number at the beginning of this period as it was at the end of this period). According to our aggregate supply/demand analysis, which of the following must have occurred over this time frame? (Use the graph to help you see if you can determine any shift(s).) Group of answer choices a) increase in Aggregate Demand, decrease in Aggregate Supply b) decrease in Aggregate Demand, decrease in Aggregate Supply c) increase in Aggregate Demand, increase in Aggregate Supply d) increase in Aggregate Demand, but no way to determine the direction of shift in Aggregate Supply e) decrease in Aggregate Demand, increase in Aggregate Supplyarrow_forward
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