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 27, Problem 3.4P
To determine
Identify the effects of mild monsoon season on the rice crop in India.
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You are the chair of the Malaysian Economic Council. There has been an extremely hot weather due to a climate change. As a result, crop production has fallen drastically. The Prime Minister’s office calls you to discuss the impact on the economy. Would you explain to the Prime Minister that a sharp drop in Malaysia’s crop production would cause inflation, unemployment or both? Discuss.
The country of Freeland has an aggregate demand curve determined by the equation
M + U = 6%
Freeland also has a potential growth rate of 2%.
Using this information, draw Freeland's aggregate demand (AD) and long-run aggregate supply (LRAS) curves on the graph.
Inflation rate (%)
12
11
10
9
8
7
6
5
4
3
2
1
0
-2
-1 0
LRAS
1 2 3 3 4 5 6
Real GDP growth rate (%)
prevailing inflation rate:
What is the prevailing inflation rate in Freeland?
AD
What is the prevailing real GDP growth rate?
prevailing real GDP growth rate:
7
8
9 10
%
%
Which of the following will NOT cause inflation to increase in home country?
An increase in the aggregate demand
An increase in the cost of production
An increase in the unemployment rate
An increase in the prices of imported goods
Chapter 27 Solutions
Principles of Economics (12th Edition)
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