Aggregate Supply Curve ( AS ): It shows how price and the quantity supplied are related to each other. The curve is positively slopped which means that when prices rise, the quantity supplied also rises. The curve depends on the duration of time. Short Run Aggregate Supply ( SRAS ): It is a positively slopped curve in which supply increases when price rises. The reason for upward slopping is that the wages are sticky in short run due to formal or informal contracts. At higher aggregate prices there is higher profit leading to high level of output. Long Run Aggregate Supply ( LRAS ): It is a vertical curve which means it is independent of price. When price increases there is no change in quantity supplied. In the long run nominal wages are not fixed rather it can be negotiated. Aggregate Demand Curve ( AD ): It shows how price and the quantity demanded are related to each other. The curve is negatively slopped which means that when prices rise the quantity demanded falls. Shift in Aggregate Demand Curve: There are several factors on which the shifting of demand curve depends. Some of them are: Changes in expectation: when consumers are more confident about future then AD curve shifts in the right direction and vice versa. Changes in wealth: when the wealth of individual increases means real value of assets increases then the AD curve shifts in right direction and when it decreases then it shifts leftward. Size of stock of physical capital: when the size of stock is small then AD curve shifts rightward and vice versa. Fiscal policy: It includes government expenditure and taxes. When government expenditure is increased or taxes are decreased then AD curve shifts rightward and vice versa. Monetary policy: It includes money supply changes. When money supply increases AD curve shifts rightward and vice versa.

Question

Want to see the full answer?

Answer 1

Question

Chapter 12, Problem 12P

To determine

Concept Introduction:

Aggregate Supply Curve ( AS ): It shows how price and the quantity supplied are related to each other. The curve is positively slopped which means that when prices rise, the quantity supplied also rises. The curve depends on the duration of time.

Short Run Aggregate Supply ( SRAS ): It is a positively slopped curve in which supply increases when price rises. The reason for upward slopping is that the wages are sticky in short run due to formal or informal contracts. At higher aggregate prices there is higher profit leading to high level of output.

Long Run Aggregate Supply ( LRAS ): It is a vertical curve which means it is independent of price. When price increases there is no change in quantity supplied. In the long run nominal wages are not fixed rather it can be negotiated.

Aggregate Demand Curve ( AD ): It shows how price and the quantity demanded are related to each other. The curve is negatively slopped which means that when prices rise the quantity demanded falls.

Shift in Aggregate Demand Curve: There are several factors on which the shifting of demand curve depends. Some of them are:

Changes in expectation: when consumers are more confident about future then AD curve shifts in the right direction and vice versa.

Changes in wealth: when the wealth of individual increases means real value of assets increases then the AD curve shifts in right direction and when it decreases then it shifts leftward.

Size of stock of physical capital: when the size of stock is small then AD curve shifts rightward and vice versa.

Fiscal policy: It includes government expenditure and taxes. When government expenditure is increased or taxes are decreased then AD curve shifts rightward and vice versa.

Monetary policy: It includes money supply changes. When money supply increases AD curve shifts rightward and vice versa.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Asap please

Tasks Exercise 1 Assess the following functions: 1. f(x)= x2+6x+2 2.f '(x)=10x-2x2+5 a. Find the stationary points. (5 marks) b. Determine whether the stationary point is a maximum or minimum. (5 marks) c. Draw the corresponding curves (5 marks)

Problem 2: The sales data over the last 10 years for the Acme Hardware Store are as follows: 2003 $230,000 2008 $526,000 2004 276,000 2009 605,000 2005 328,000 2010 690,000 2006 388,000 2011 779,000 2007 453,000 2012 873,000 1. Calculate the compound growth rate for the period of 2003 to 2012. 2. Based on your answer to part a, forecast sales for both 2013 and 2014. 3. Now calculate the compound growth rate for the period of 2007 to 2012. 1. Based on your answer to part e, forecast sales for both 2013 and 2014. 5. What is the major reason for the differences in your answers to parts b and d? If you were to make your own projections, what would you forecast? (Drawing a graph is very helpful.)