Subpart (a):
The graphical illustration for the changes in
Subpart (a):
Explanation of Solution
Figure 1 shows the shift in the supply curve of labor force.
In Figure 1, the vertical axis measures the price level and the horizontal axis measures the aggregate output. The upward sloping curves AS0 and AS1 are aggregate supply curves. The decrease in the size of labor force reduces the supply of labor in the market. It shifts the
Concept introduction:
Aggregate Supply (AS): Aggregate supply refers to the total value of the goods and the services available for purchase at a particular price in a given period of time.
Subpart (b):
The graphical illustration for the changes in aggregate supply.
Subpart (b):
Explanation of Solution
Figure 2 shows the changes in the aggregate supply curve of capital.
In Figure 2, the vertical axis measures the price level and the horizontal axis measures the aggregate output. The upward sloping curves AS0 and AS1 are aggregate supply curves. The increase in available capital increases the supply of capital in the market. It shifts the supply curve from AS1 to AS0.
Concept introduction:
Aggregate Supply (AS): Aggregate supply refers to the total value of the goods and services available for purchase at a particular price in a given period of time.
Subpart (c):
The graphical illustration for the changes in aggregate supply.
Subpart (c):
Explanation of Solution
Figure 3 shows the changes in aggregate supply curve.
In Figure 3, the vertical axis measures the price level and the horizontal axis measures the aggregate output. The upward sloping curves AS0 and AS1 are aggregate supply curves. An increase in the productivity, as a result of a technological change, shifts the aggregate supply curve to the right (from AS1 to AS0).
Concept introduction:
Aggregate Supply (AS): Aggregate supply refers to the total value of the goods and services available for purchase at a particular price in a given period of time.
Subpart (d):
The graphical illustration for the changes in aggregate supply curve.
Subpart (d):
Explanation of Solution
Figure 4 shows the changes in aggregate supply curve.
In Figure 4, the vertical axis measures the price level and the horizontal axis measures the aggregate output. The upward sloping curves AS0 and AS1 are aggregate supply curves. The increase in the price of oil increases the supply of oil in the market. It shifts the aggregate supply curve rightward (from AS1 to AS0).
Concept introduction:
Aggregate Supply (AS): Aggregate supply refers to the total value of the goods and services available for purchase at a particular price in a given period of time.
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Chapter 26 Solutions
Principles of Economics (12th Edition)
- The following graph shows the short-run and long-run aggregate supply curves (SRAS and LRAS) for an economy. Suppose there is a technological improvement that allows firms to reduce their costs of production permanently. Drag one or both of the curves on the graph to illustrate the long-term effects of this change. If you don't believe there will be any long-term effects, leave the curves where they are. 240 LRAS SRAS 200 SRAS 160 LRAS 120 80 40 6 12 18 24 REAL GDP (Trillions of dollars) Assuming aggregate demand is not affected by the technological improvement, the long-run effect of this v supply shock is v in aggregate output and v in the price level. PRICE LEVELarrow_forwardI feel like I got the graph wrong, but at the same time, I feel like I did it correctly.arrow_forwardQUESTION 2 Explain whether each of the following events will increase, decrease or have no effect on long-run aggregate supply. a) Malaysia experiences a wave of immigration. b) Intel invents a new and more powerful computer chip. c) Tenaga Nasional Berhad (TNB) invests in new electricity transmission technology. d) A severe flood damages factories in Pahang.arrow_forward
- Assume that the United States is currently in a recession. a. Draw a correctly labelled graph of aggregate demand and aggregate supply showing each of the following in the United States: i. Output level ii. Price level Aarrow_forwardI don't quite understand what is asking of the change that will occur in the long runarrow_forwardThe imaginary country of Harris Island has the aggregate supply and aggregate demand curves as Table shows. Price Level: AD/AS Price Level AD AS 100 800 300 120 700 425 140 600 600 160 500 670 180 400 720 Plot the AD/AS diagram (You don't have to submit the plot, but I recommend doing it as it will help you with this problem). Identify the equilibrium. Blank #1 - Equilibrium Price Level Blank #2 - Equilibrium GDP Blank #3 - Would you expect unemployment in this economy to be relatively high or low? Blank #4 - Would you expect concern about inflation in this economy to be relatively high or low? Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Blank #5 - What is the new equilibrium GDP? Blank #6 - What is the new equilibrium Price Level? How will the shift in AD affect (answer is rise or fall)..arrow_forward
- The imaginary country of Harris Island has the aggregate supply and aggregate demand curves as Table shows. Price Level: AD/AS Price Level AD AS 100 800 300 120 700 425 140 600 600 160 500 670 180 400 720 Plot the AD/AS diagram (You don't have to submit the plot, but I recommend doing it as it will help you with this problem). Identify the equilibrium. Blank #1 - Equilibrium Price Level Blank #2 - Equilibrium GDP Blank #3 - Would you expect unemployment in this economy to be relatively high or low? Blank #4 - Would you expect concern about inflation in this economy to be relatively high or low? Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Blank #5 - What is the new equilibrium GDP? Blank #6 - What is the new equilibrium Price Level? How will the shift in AD affect (answer is rise or fall)... Blank #7 - the original output? Blank #8 - the price…arrow_forwardWhich of the following is not a component of the aggregate demand curve? a.Government spending(G) b. Investment (I) c. Consumption (C) d. net exports (X-M) e. Savingsarrow_forwardUsing aggregate demand and aggregate supply, graph the effects on the price level and GDP of each of the following. Draw a large graph and label all axes, initial and final equilibrium points, direction of shift if any, all curves and lines, equilibrium values on the x- and y-axes. State the conclusion in words. a. A cut in income taxes b. An increase in military spending c. A drop in export demand by foreign purchasers d. An increase in imports e. A decline in business investment spendingarrow_forward
- What happens to each sector of the economy when recession occurs?arrow_forwardWhat is the shape of the aggregate supply curve in the long run and in the short run? Explain the reasons why they are shaped that way.arrow_forwardHow does the aggregate demand and aggregate supply looks in the long run. Explain with the help of a proper graph.arrow_forward
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