Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 26, Problem 2.5P
To determine
Accurate explanation of aggregate
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If the economy’s labor force is increasing and also becoming more productive, what will happen to the aggregate supply curve?
Give examples of the factors that shift the Aggregate Demand Curve.
Suppose a boom in stock market prices helps make people feel wealthier. Using the model of aggregate demand and aggregate supply, identify and illustrate the curves that are affected, and which direction these curves would shift. In your own words, explain what happens to price level and real GDP and equilibrium? (Hint: Graph your own AD/AS model to answer part of the question)
Chapter 26 Solutions
Principles of Economics (12th Edition)
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- Give three reasons why the aggregate demand curve slopes downward.arrow_forwardThree ways to increase Consumption which would cause a shift right in the AD curve would be or orarrow_forwardThe 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_forward
- are my answers correct?arrow_forwardUse the following scenario for the next two questions. Suppose that the federal government decides to forgive all current (and future) outstanding student loans (estimated to total around $1.6 trillion as of early 2020). When thinking about the AD/AS model, which curve would this shift in the short-run, and in which direction? AD curve, to the left AD curve, to the right OSRAS curve only, to the right OSRAS and AD curves, to the left. OSRAS and LRAS curves, to the leftarrow_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_forward
- Explain what is meant by aggregate demand. Then how to derive the AD curve and why the AD curve has a negative slope. Explain using a graph how the effect of an increase in money supply on the AD curve. In the same way, also explain the effect of an increase in government purchase on the AD curve.arrow_forwardThe 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_forwardThe imaginary country of Harris Island has the aggregate supply and aggregate demand curves as Table 24.3 shows. a. Identify the (i) equilibrium basing from the AD/AS diagram attached. b. Would you expect unemployment in this economy to be relatively high or low? c. Would you expect concern about inflation in this economy to be relatively high or low? d. Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Identify the new aggregate equilibrium. e. How will the shift in AD affect the original output, price level, and employment?arrow_forward
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