Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 14, Problem 8WNG
To determine
Effect of aggregate
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A visual/graphic representation of how a decrease in consumer spending shifts the aggregate demand curve.
In order to break stagflation, the government has to increase expenditure on food subsidies in the form of food vouchers, unemployment benefits or allowances, wages subsidy to increase household consumption expenditure and boost up the AD. With increased consumption
expenditure, aggregate demand will rise, which would send a signal to the aggregate supply (AS) to raise production. This will create a positive effect, which will bring the economy out of recession.
Show this in a graph.
Refer to the following figure to answer the following questions.
Price
level
(P)
F
LRAS
E
ח
A
B
D
C
SRAS3
AD₁
SRAS,
SRAS₂
AD₂
Real GDP
(Y)
Based on the figure, If the economy starts at point A and ends up at point E, then in the
short run, there was a(n)
Increase in long-run aggregate supply.
decrease in short-run aggregate supply.
Increase in short-run aggregate supply.
Chapter 14 Solutions
Macroeconomics
Ch. 14.1 - Prob. 1STCh. 14.1 - Prob. 2STCh. 14.1 - Prob. 3STCh. 14.2 - Prob. 1STCh. 14.2 - Prob. 2STCh. 14.3 - Prob. 1STCh. 14.3 - Prob. 2STCh. 14.3 - Prob. 3STCh. 14.4 - Prob. 1STCh. 14.4 - Prob. 2ST
Ch. 14.4 - Prob. 3STCh. 14 - Prob. 1QPCh. 14 - Prob. 2QPCh. 14 - Prob. 3QPCh. 14 - Prob. 4QPCh. 14 - Prob. 5QPCh. 14 - Prob. 6QPCh. 14 - Prob. 7QPCh. 14 - Prob. 8QPCh. 14 - Prob. 9QPCh. 14 - Prob. 10QPCh. 14 - Prob. 11QPCh. 14 - Prob. 12QPCh. 14 - Prob. 13QPCh. 14 - Prob. 14QPCh. 14 - Prob. 15QPCh. 14 - Prob. 16QPCh. 14 - Prob. 17QPCh. 14 - Prob. 18QPCh. 14 - Prob. 19QPCh. 14 - Prob. 1WNGCh. 14 - Prob. 2WNGCh. 14 - Prob. 3WNGCh. 14 - Prob. 4WNGCh. 14 - Prob. 5WNGCh. 14 - Prob. 6WNGCh. 14 - Prob. 7WNGCh. 14 - Prob. 8WNG
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- The graphs illustrate an initial equilibrium for the economy. Suppose that the government increases taxes. Use the graphs to show the new positions of aggregate demand (AD), short-run aggregate supply (SRAS), and long-run aggregate supply (LRAS) in both the short run and the long run, as well as the short-run and long-run equilibriums resulting from this change. Then, indicate what happens to the price level and GDP in the short run and in the long run. Aggregate price level Short-run graph LRAS SRAS Short-run equilibrium Real GDP AD Aggregate price level Long-run graph LRAS Long-run equilibrium Real GDP AD SRAS gatearrow_forwardExplain fully why the aggregate demand curve has a negative slope.arrow_forwardGive three reasons why the aggregate demand curve slopes downward.arrow_forward
- Complete the table by indicating the change in each determinant necessary to decrease aggregate demand. Change Needed to Decrease AD Wealth Taxes Expected rate of return on investment Incomes in other countriesarrow_forwardHow does the economy return to equilibrium in response to changes in aggregate demand (AD) and aggregate supply (AS) in both the short run and long run.arrow_forwardhow should I answer this ?arrow_forward
- In this aggregate demand model, which one of the following statements correctly describes the economy if it is at point Y on the diagram? 1 - The economy is at the full employment equilibrium 2- There are forces that are tending to make income (output) fall. 3-There are forces that are tending to make income (output) rise. 4-The economy is in equilibrium at less than full employment.arrow_forward6. 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 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-price theory asserts that the output prices of some goods and services adjust slowly to changes in the price level. Suppose firms announce the prices for their products in advance, based on an expected price level of 100 for the coming year. Many of the firms sell their goods through catalogs and face high costs of reprinting if they change prices. The actual price level turns out to be 90. Faced with high menu costs, and firms that rely on catalogs the firms that rely on catalog sales choose not to adjust their prices. Sales from catalogs will will respond by the quantity of output they supply. If enough firms face high costs of adjusting prices, the unexpected decrease…arrow_forwardIn the short run, the quantity of output supplied by firms can deviate from the natural level of output if the actual price level deviates from the expected price level in the economy. A number of theories explain reasons why this might happen. For example, the sticky-price theory asserts that the output prices of some goods and services adjust slowly to changes in the price level. Suppose firms announce the prices for their products in advance, based on an expected price level of 100 for the coming year. Many of the firms sell their goods through catalogs and face high costs of reprinting if they change prices. The actual price level turns out to be 110. Faced with high menu costs, the firms that rely on catalog sales choose not to adjust their prices. Sales from catalogs will and firms that rely on catalogs will respond by the quantity of output they supply. If enough firms face high costs of adjusting prices, the unexpected increase in the price level causes the quantity of output…arrow_forward
- For the first four questions today, what is the effect of each scenario on aggregate demand? In each case, choose from among the following: (it shifts to the left/it shifts to the right/there is a movement along the curve). Stock market indexes drop by 20%, reducing the value of retirement savings for many Americans It shifts to the left. It shifts to the right. There is a movement along the curve.arrow_forwardSuppose business owners are more confident about the future, and decide to invest in their businesses. This will cause the aggregate demand curve to: Shift right Stay the same Shift rightarrow_forwardhow should I make the curvearrow_forward
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