PRINCIPLES OF MACROECONOMICS (LL)W/ACC.
7th Edition
ISBN: 9781264088980
Author: Frank
Publisher: MCG
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Chapter 13, Problem 4P
(a)
To determine
Construct a table to find the short-run equilibrium output and consider possible values ranging from 8,200 to 9,000.
(b)
To determine
Determine the short-run equilibrium output of this economy using the Keynesian cross.
(c)
To determine
The output gap and actual
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The figure to the right shows the result of an increase in aggregate demand
from AD to AD₁.In its new short run equilibrium the economy is resting
its potential output.
Because the economy is producing beyond its potential output level, input
prices and hence production costs are being pushed upward.
Using either the line drawing tool or the 3-point curved line drawing tool,
illustrate the impact of rising production costs. Properly label your new line or
curve.
Note: Carefully follow the instructions above and only draw the required
object.
According to your figure, the eventual long-run impact of the increase in
aggregate demand is
O A. higher prices, lower output.
OB. higher prices, higher output.
OC. higher prices, unchanged output.
O D. higher output, unchanged prices.
Price level, P
AS (Long run)
ASO (Short run)
Yo Y₁
Aggregate output (income), Y
AD₁
ADO
Macropoland, a country that is a natural gas and oil importer, has a natural rate of unemployment (at the full employment level of GDP) that is about 4.5%, and the long run average rate of inflation over time has been about 2%. However, during the period 1973-1974, the country experienced an inflation rate of about 15% while simultaneously experiencing unemployment of nearly 13%.At the present time, Macropoland is experiencing very sluggish consumption and investment (a result of a fall in the housing market), and unemployment has again edged up to around 9%. Inflation is very low at 0.4%.Macropoland has just hired you as their economic advisor. You have a big job ahead of you. Using your knowledge of aggregate demand and aggregate supply, can you explain what happened in these two time periods?Develop a response that includes examples and evidence to support your ideas, and which clearly communicates the required message to your audience. Organize your response in a clear and logical…
Suppose the full employment output level in this economy is $320 billion. In order to move the economy to full-employment output at the lowest
possible price level, the aggregate demand curve must shift to the
by
at each price level.
Use the green line (triangle symbols) to show the shift in aggregate demand necessary to return the economy to full employment. Then use the purple
drop lines (diamond symbol) to show the macroeconomic equilibrium at full-employment output. Be sure the new aggregate demand curve (AD₂) is
parallel to AD₁. You can click on AD, to see its slope.
Suppose the government in this economy wants to enact fiscal policies that will shift the aggregate demand curve in the direction and magnitude you
indicated. The marginal propensity to consume (MPC) in this economy is 0.50. This implies a spending multiplier of
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Chapter 13 Solutions
PRINCIPLES OF MACROECONOMICS (LL)W/ACC.
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