The indication of the sticky price model of aggregate supply .

Question

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Answer 1

Question

Chapter 14, Problem 1QQ

To determine

The indication of the sticky price model of aggregate supply.

Expert Solution & Answer

Answer to Problem 1QQ

Option 'a' is correct.

Explanation of Solution

The supply curve of the individual is known as the individual supply curve. The aggregate supply is the summation of all individual supply curves of the economy.

Option (a):

When the market is facing a price fluctuation, the output would also face the same. Under the small price drops, the output does not fall much due to the sticky prices of the goods and services in the economy. But when there is a larger fall in the price level which makes it below the expected level, then the sticky prices will not act, and the economy would face the fall in the total output. Thus, the sticky price model explains the reason the output declines when prices fall below the expected prices. Thus, option 'a' is correct.

Option (b):

The sticky price theory is a theory that explains that when there is a small change in the inflation level in the economy, the prices of goods and services would not immediately react to it and change the prices. The prices would remain sticky up to the point where the actual inflation becomes more than the expected level of inflation. Thus, option 'b' is incorrect.

Option (c):

The sticky price model explains the stickiness of the price level that does not make the prices to immediately move toward a new market-clearing price level in the economy. It does not explain the scars that the recession can make on the economy, which means that option 'c' is incorrect.

Option (d):

The natural rate of unemployment is the rate of unemployment present in the economy even when full resources are utilized by the economy. Thus, it is the rate of unemployment present at the full employment level of the economy. It is not explained by the sticky price model, which means that option 'd' is incorrect.

Economics Concept Introduction

Aggregate supply: Aggregate supply is the total supply of goods and services available in the economy from all its producers.

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Students have asked these similar questions

Short Description Fiscal Policy Graph Details Shown is a Fiscal Policy diagram with the variable Real GDP (billions of dollars) on the x-axis and the variable Price Level on the y-axis. The x-axis is scaled from 0 to 800 billion dollars with an increment of 40 billion dollars, and the y-axis is scaled from 30 to 150 units with an increment of 5 units. Object Details On the graph we have:Four Line Objects:An upward sloping Aggregate Supply, AS line with two endpoints:Point 1 at (160, 70)Point 2 at (720, 140)A downward sloping Aggregate Demand, AD1 line with two endpoints:Point 1 at (80, 110)Point 2 at (640, 40)A vertical Long-run Aggregate Supply, LRAS with two endpoints:Point 1 at (400, 145)Point 2 at (400, 30)A downward sloping Aggregate Demand, AD line with two endpoints:Point 1 at (720, 60)Point 2 at (160, 130)Two Reference Points:Lines AS, AD, and LRAS intersect at (400, 100)Lines AS and AD1 intersect at (280, 85) a. How much does aggregate demand need to change to restore the…

Fiscal Policy Graph Details Shown is a Fiscal Policy diagram with the variable Real GDP (billions of dollars) on the x-axis and the variable Price Level on the y-axis. The x-axis is scaled from 0 to 1000 billion dollars with an increment of 50 billion dollars, and the y-axis is scaled from 0 to 180 units with an increment of 10 units. Object Details On the graph we have:Four Line Objects:An upward sloping Aggregate Supply, AS line with two endpoints:Point 1 at (200, 40)Point 2 at (800, 160)A downward sloping Aggregate Demand, AD line with two endpoints:Point 1 at (200, 160)Point 2 at (800, 40)A downward sloping Aggregate Demand, AD1 line with two endpoints:Point 1 at (350, 170)Point 2 at (900, 60)A vertical Long-run Aggregate Supply, LRAS line with two endpoints:Point 1 at (500, 170)Point 2 at (500, 0)Two Reference Points:Lines AS and AD1 intersect at (600, 120)Lines AS, AD, and LRAS intersect at (500, 100) a. How much does aggregate demand need to change to restore the…

a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? $ billion Suppose instead that the MPC is 0.95. c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.

Answer 2

Question

Chapter 14, Problem 1QQ

To determine

The indication of the sticky price model of aggregate supply.

Expert Solution & Answer

Answer to Problem 1QQ

Option 'a' is correct.

Explanation of Solution

The supply curve of the individual is known as the individual supply curve. The aggregate supply is the summation of all individual supply curves of the economy.

Option (a):

When the market is facing a price fluctuation, the output would also face the same. Under the small price drops, the output does not fall much due to the sticky prices of the goods and services in the economy. But when there is a larger fall in the price level which makes it below the expected level, then the sticky prices will not act, and the economy would face the fall in the total output. Thus, the sticky price model explains the reason the output declines when prices fall below the expected prices. Thus, option 'a' is correct.

Option (b):

The sticky price theory is a theory that explains that when there is a small change in the inflation level in the economy, the prices of goods and services would not immediately react to it and change the prices. The prices would remain sticky up to the point where the actual inflation becomes more than the expected level of inflation. Thus, option 'b' is incorrect.

Option (c):

The sticky price model explains the stickiness of the price level that does not make the prices to immediately move toward a new market-clearing price level in the economy. It does not explain the scars that the recession can make on the economy, which means that option 'c' is incorrect.

Option (d):

The natural rate of unemployment is the rate of unemployment present in the economy even when full resources are utilized by the economy. Thus, it is the rate of unemployment present at the full employment level of the economy. It is not explained by the sticky price model, which means that option 'd' is incorrect.

Economics Concept Introduction

Aggregate supply: Aggregate supply is the total supply of goods and services available in the economy from all its producers.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 14, Problem 1QQ

To determine

The indication of the sticky price model of aggregate supply.

Expert Solution & Answer

Answer to Problem 1QQ

Option 'a' is correct.

Explanation of Solution

The supply curve of the individual is known as the individual supply curve. The aggregate supply is the summation of all individual supply curves of the economy.

Option (a):

When the market is facing a price fluctuation, the output would also face the same. Under the small price drops, the output does not fall much due to the sticky prices of the goods and services in the economy. But when there is a larger fall in the price level which makes it below the expected level, then the sticky prices will not act, and the economy would face the fall in the total output. Thus, the sticky price model explains the reason the output declines when prices fall below the expected prices. Thus, option 'a' is correct.

Option (b):

The sticky price theory is a theory that explains that when there is a small change in the inflation level in the economy, the prices of goods and services would not immediately react to it and change the prices. The prices would remain sticky up to the point where the actual inflation becomes more than the expected level of inflation. Thus, option 'b' is incorrect.

Option (c):

The sticky price model explains the stickiness of the price level that does not make the prices to immediately move toward a new market-clearing price level in the economy. It does not explain the scars that the recession can make on the economy, which means that option 'c' is incorrect.

Option (d):

The natural rate of unemployment is the rate of unemployment present in the economy even when full resources are utilized by the economy. Thus, it is the rate of unemployment present at the full employment level of the economy. It is not explained by the sticky price model, which means that option 'd' is incorrect.

Economics Concept Introduction

Aggregate supply: Aggregate supply is the total supply of goods and services available in the economy from all its producers.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 14, Problem 1QQ

To determine

The indication of the sticky price model of aggregate supply.

Expert Solution & Answer

Answer to Problem 1QQ

Option 'a' is correct.

Explanation of Solution

The supply curve of the individual is known as the individual supply curve. The aggregate supply is the summation of all individual supply curves of the economy.

Option (a):

When the market is facing a price fluctuation, the output would also face the same. Under the small price drops, the output does not fall much due to the sticky prices of the goods and services in the economy. But when there is a larger fall in the price level which makes it below the expected level, then the sticky prices will not act, and the economy would face the fall in the total output. Thus, the sticky price model explains the reason the output declines when prices fall below the expected prices. Thus, option 'a' is correct.

Option (b):

The sticky price theory is a theory that explains that when there is a small change in the inflation level in the economy, the prices of goods and services would not immediately react to it and change the prices. The prices would remain sticky up to the point where the actual inflation becomes more than the expected level of inflation. Thus, option 'b' is incorrect.

Option (c):

The sticky price model explains the stickiness of the price level that does not make the prices to immediately move toward a new market-clearing price level in the economy. It does not explain the scars that the recession can make on the economy, which means that option 'c' is incorrect.

Option (d):

The natural rate of unemployment is the rate of unemployment present in the economy even when full resources are utilized by the economy. Thus, it is the rate of unemployment present at the full employment level of the economy. It is not explained by the sticky price model, which means that option 'd' is incorrect.

Economics Concept Introduction

Aggregate supply: Aggregate supply is the total supply of goods and services available in the economy from all its producers.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 14, Problem 1QQ

To determine

The indication of the sticky price model of aggregate supply.

Expert Solution & Answer

Answer to Problem 1QQ

Option 'a' is correct.

Explanation of Solution

The supply curve of the individual is known as the individual supply curve. The aggregate supply is the summation of all individual supply curves of the economy.

Option (a):

When the market is facing a price fluctuation, the output would also face the same. Under the small price drops, the output does not fall much due to the sticky prices of the goods and services in the economy. But when there is a larger fall in the price level which makes it below the expected level, then the sticky prices will not act, and the economy would face the fall in the total output. Thus, the sticky price model explains the reason the output declines when prices fall below the expected prices. Thus, option 'a' is correct.

Option (b):

The sticky price theory is a theory that explains that when there is a small change in the inflation level in the economy, the prices of goods and services would not immediately react to it and change the prices. The prices would remain sticky up to the point where the actual inflation becomes more than the expected level of inflation. Thus, option 'b' is incorrect.

Option (c):

The sticky price model explains the stickiness of the price level that does not make the prices to immediately move toward a new market-clearing price level in the economy. It does not explain the scars that the recession can make on the economy, which means that option 'c' is incorrect.

Option (d):

The natural rate of unemployment is the rate of unemployment present in the economy even when full resources are utilized by the economy. Thus, it is the rate of unemployment present at the full employment level of the economy. It is not explained by the sticky price model, which means that option 'd' is incorrect.

Economics Concept Introduction

Aggregate supply: Aggregate supply is the total supply of goods and services available in the economy from all its producers.

Answer 6

Chapter 14, Problem 1QQ

To determine

The indication of the sticky price model of aggregate supply.

Expert Solution & Answer

Answer to Problem 1QQ

Option 'a' is correct.

Explanation of Solution

The supply curve of the individual is known as the individual supply curve. The aggregate supply is the summation of all individual supply curves of the economy.

Option (a):

When the market is facing a price fluctuation, the output would also face the same. Under the small price drops, the output does not fall much due to the sticky prices of the goods and services in the economy. But when there is a larger fall in the price level which makes it below the expected level, then the sticky prices will not act, and the economy would face the fall in the total output. Thus, the sticky price model explains the reason the output declines when prices fall below the expected prices. Thus, option 'a' is correct.

Option (b):

The sticky price theory is a theory that explains that when there is a small change in the inflation level in the economy, the prices of goods and services would not immediately react to it and change the prices. The prices would remain sticky up to the point where the actual inflation becomes more than the expected level of inflation. Thus, option 'b' is incorrect.

Option (c):

The sticky price model explains the stickiness of the price level that does not make the prices to immediately move toward a new market-clearing price level in the economy. It does not explain the scars that the recession can make on the economy, which means that option 'c' is incorrect.

Option (d):

The natural rate of unemployment is the rate of unemployment present in the economy even when full resources are utilized by the economy. Thus, it is the rate of unemployment present at the full employment level of the economy. It is not explained by the sticky price model, which means that option 'd' is incorrect.

Economics Concept Introduction

Aggregate supply: Aggregate supply is the total supply of goods and services available in the economy from all its producers.

Answer 7

Chapter 14, Problem 1QQ

To determine

The indication of the sticky price model of aggregate supply.

Answer 8

Expert Solution & Answer

Answer to Problem 1QQ

Option 'a' is correct.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

The supply curve of the individual is known as the individual supply curve. The aggregate supply is the summation of all individual supply curves of the economy.

Option (a):

When the market is facing a price fluctuation, the output would also face the same. Under the small price drops, the output does not fall much due to the sticky prices of the goods and services in the economy. But when there is a larger fall in the price level which makes it below the expected level, then the sticky prices will not act, and the economy would face the fall in the total output. Thus, the sticky price model explains the reason the output declines when prices fall below the expected prices. Thus, option 'a' is correct.

Option (b):

The sticky price theory is a theory that explains that when there is a small change in the inflation level in the economy, the prices of goods and services would not immediately react to it and change the prices. The prices would remain sticky up to the point where the actual inflation becomes more than the expected level of inflation. Thus, option 'b' is incorrect.

Option (c):

The sticky price model explains the stickiness of the price level that does not make the prices to immediately move toward a new market-clearing price level in the economy. It does not explain the scars that the recession can make on the economy, which means that option 'c' is incorrect.

Option (d):

The natural rate of unemployment is the rate of unemployment present in the economy even when full resources are utilized by the economy. Thus, it is the rate of unemployment present at the full employment level of the economy. It is not explained by the sticky price model, which means that option 'd' is incorrect.