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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Question
Chapter 26, Problem 5.3P
Subpart (a):
To determine
The graphical illustration of economy to achieve potential
Subpart (b):
To determine
The graphical illustration of changes in AD, AS curve.
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The following graph plots aggregate demand (AD2027AD2027) and aggregate supply (AS) for the imaginary country of Cotopaxi in the year 2027.
Suppose the natural level of output in this economy is $6 trillion.
On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy.
Economists forecast that if the government takes no action and the economy continues to grow at the current rate, aggregate demand in 2028 will be given by the curve labeled ADAADA, resulting in the outcome given by point A. If, however, the government pursues an expansionary policy, aggregate demand in 2028 will be given by the curve labeled ADBADB, resulting in the outcome given by point B.
The following table presents projections for the unemployment rates that would occur at point A and point B. Consider the potential rate of inflation between 2027 and 2028, depending on whether the economy moves from the initial price level of 102 to the…
On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange
line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 100, 105, 110, 115,
and 120.
PRICE LEVEL
125
120
115 +
110
105
100
95
90
85
80
75
0
10
20
30 40 50 60 70
OUTPUT (Billions of dollars)
80 90 100
0
AS
LRAS
?
The short-run quantity of output supplied by firms will fall short of the natural level of output when the actual price level
level that people expected.
the price
Use the following graph to answer the following questions.
Line Y
Price level
(P)
100
80
B
Line Z
Line X2
Line X1
Real GDP
(3)
If point A occurs chronologically before point B, then this graph could represent
a decrease in aggregate demand with a decrease in long-run and short-run aggregate supply.
a decrease in aggregate demand with constant long-run and short-run aggregate supply.
constant aggregate demand with a decline in long-run aggregate supply.
an increase in aggregate demand with constant long-run and short-run aggregate supply.
constant aggregate demand with a decline in short-run aggregate supply.
Chapter 26 Solutions
Principles of Economics (12th Edition)
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