Effect on Aggregate Demand and Supply.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 32, Problem 6RQ

Subpart (a):

To determine

Effect on Aggregate Demand and Supply.

Subpart (a):

Expert Solution

Explanation of Solution

When consumers fear of an impending economic depression, their spending decline and they tend to save more. This leads to a decrease in AD curve. This can be explained by using figure 1.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 1

In figure 1, horizontal axis represents the real GDP(Gross Domestic Product) and vertical axis represents price level. In this case, the AD curve shifts left (from AD₁ to AD₂), and this moves the equilibrium position from a to c, thus there is a decline in the output (from Q_f to Q₁) and a decline in the price level (from P₁ to P₂), assuming no ratchet effect.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (b):

To determine

Effect on Aggregate Demand and Supply.

Subpart (b):

Expert Solution

Explanation of Solution

When a new tax is imposed on producers, cost of production comes up and there is no incentive to produce more. This leads to a decline in AS curve. This can be explained using figure 2.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 2

In figure 2, horizontal axis represents the real GDP and vertical axis represents price level. In this case, the AS curve shifts left (from AS to AS₁), this moves the equilibrium position from E to T, thus there is a decline in the output (from Q to Q₁) and a rise in the price level (from P to P₁).

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (c):

To determine

Effect on Aggregate Demand and Supply.

Subpart (c):

Expert Solution

Explanation of Solution

Figure 3 can explain the shift in AD curve due to reduction in interest rates at each price level. In figure 3, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 3

A reduction in interest rates decreases the borrowing cost increases the spending.

This leads to a rightward shift of AD curve from AD₁ to AD₂. Thus, it brings the output and price level up. The output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (d):

To determine

Effect on Aggregate Demand and Supply.

Subpart (d):

Expert Solution

Explanation of Solution

A major increase in spending shifts the AD curve to right. Figure 4 is used to explain this situation. In figure 4, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 4

Government expenditure is a key determinant of changes in the aggregate demand. The increase in government spending (spending for health care) increases the aggregate demand leading to a shift of AD curve from AD₁ to AD₂. Any real improvements in healthcare resulting from the spending would ultimately increase the productivity, thereby shifting the AS curve to the right (from AS₁ to AS₂). The equilibrium moves from a to c leading to an increase in output (from Q₁ to Q₃) .It will also move the price level up from P₁ to P₃.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (e):

To determine

Effect on Aggregate Demand and Supply.

Subpart (e):

Expert Solution

Explanation of Solution

The general expectation of surging inflation in the near future will increase the aggregate demand today because the consumers will want to buy products before their prices escalate. This can be illustrated using figure 3. As a result, there will be a rightward shift of AD curve from AD₁ to AD₂ which brings the output and price level up. In figure 3, the output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (f):

To determine

Effect on Aggregate Demand and Supply.

Subpart (f):

Expert Solution

Explanation of Solution

Figure 5 is used to explain this case. In figure 5, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 5

As oil prices fall (oil is an imported resource) due to the disintegration of OPEC, it increases the U.S. aggregate supply. As a result, there will be a rightward shift of AS curve from AS to AS₁. This brings the output level up from Q to Q₁ and price level down from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (g):

To determine

Effect on Aggregate Demand and Supply.

Subpart (g):

Expert Solution

Explanation of Solution

A reduction in the personal income tax rates raises take-home income increases consumer purchases at each possible price level. This is illustrated in figure 3. Tax cuts shift the aggregate demand curve to the right from AD₁ to AD₂ which brings the output and price level up. In figure 3, the output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (h):

To determine

Effect on Aggregate Demand and Supply.

Subpart (h):

Expert Solution

Explanation of Solution

The sizable increase the labor productivity with no change in nominal wages will increase the overall productivity as more output is available for the given input. This increases the aggregate supply thereby shifting the AS curve to the right from AS to AS₁ (Refer Figure 5). This leads to an increase in output (from Q to Q₁) and a decrease in price level from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (i):

To determine

Effect on Aggregate Demand and Supply.

Subpart (i):

Expert Solution

Explanation of Solution

This case can be explained using Figure 2. When there is an increase in nominal wages with no change in productivity, it increases per unit cost of production. This force the AS curve to shift left (from AS to AS₁). The equilibrium position moves from E to T, thus there are a decline in the output (from Q to Q₁) and a rise in the price level (from P to P₁).

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (j):

To determine

Effect on Aggregate Demand and Supply.

Subpart (j):

Expert Solution

Explanation of Solution

Figure 6 shows the impact of increasing demand and decreasing supply.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 6

Figure 6 is used to explain this condition. The horizontal axis in Figure 6 measures the real domestic output whereas price level is measured by the vertical axis. A rise in net exports (higher exports relative to imports) shifts the aggregate demand curve to the right (from AD₁ to AD₂). But, due to the higher input prices, per unit cost is more, leading to a shift of the aggregate supply curve to the left from AS₁ to AS₂. This leads to an increase in output from Q to Q₁ along with an increase in price level from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Respond to Luis Rodriguez I recommend Mrs. Ibrahim's proposal to lower interest rates as the more effective approach for fostering economic growth in Sudan. Sustainable Growth - Lowering interest rates encourages investment in productive capacity, which can lead to long-term economic growth rather than a temporary boost from cash transfers. Job Creation - This approach can create more stable employment opportunities by promoting business expansion through lower borrowing costs. Addressing Structural Issues - Lower interest rates can help address underlying structural issues in the economy, such as low production levels, by incentivizing businesses to invest in technology and infrastructure. Inflation Control - While there is a risk of inflation if appropriately managed, focusing on productive investments can help mitigate this risk compared to the potential inflationary effects of direct cash transfers. In conclusion, while both proposals have merit, Mrs. Ibrahim's approach of…

Consider the competitive market for rhodium. Assume that no matter how many firms operate in the industry, every firm is identical and faces the same marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves plotted in the following graph. 100 90 80 70 COSTS (Dollars per pound) 8 50 40 ຊ 20 10, 10 10 + MC ATC AVC Π 0 0 5 10 15 20 25 30 35 40 45 50 QUANTITY (Thousands of pounds) (?)

3. Uncle Mateo loves shoes and high unemployment. Uncle Mateo owns a small shoe factory in Argentina. His business is doing fairly well, especially because prices in Argentina have been falling, including the cost of labor too, since August of 2024. The date is September 1, 2024, and uncle Mateo texted you the following message in an effort to seek your advice about a new policy the government there is intending to implement to deal with high unemployment rates that started to creep up in early 2024: "Hola (hello) dear niece, As you know, prices in Argentina have been falling recently, which is great because I can now hire more people and buy material cheaper than I used to. Also, I was able to find more workers at lower pay because this unemployment rate has been rising. However, some crazy government people want to change things. I don’t know exactly how their ideas will affect me in the long run, but I am worried. They basically want to lower the unemployment rate, and I might have…

Answer 2

Question

Chapter 32, Problem 6RQ

Subpart (a):

To determine

Effect on Aggregate Demand and Supply.

Subpart (a):

Expert Solution

Explanation of Solution

When consumers fear of an impending economic depression, their spending decline and they tend to save more. This leads to a decrease in AD curve. This can be explained by using figure 1.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 1

In figure 1, horizontal axis represents the real GDP(Gross Domestic Product) and vertical axis represents price level. In this case, the AD curve shifts left (from AD₁ to AD₂), and this moves the equilibrium position from a to c, thus there is a decline in the output (from Q_f to Q₁) and a decline in the price level (from P₁ to P₂), assuming no ratchet effect.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (b):

To determine

Effect on Aggregate Demand and Supply.

Subpart (b):

Expert Solution

Explanation of Solution

When a new tax is imposed on producers, cost of production comes up and there is no incentive to produce more. This leads to a decline in AS curve. This can be explained using figure 2.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 2

In figure 2, horizontal axis represents the real GDP and vertical axis represents price level. In this case, the AS curve shifts left (from AS to AS₁), this moves the equilibrium position from E to T, thus there is a decline in the output (from Q to Q₁) and a rise in the price level (from P to P₁).

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (c):

To determine

Effect on Aggregate Demand and Supply.

Subpart (c):

Expert Solution

Explanation of Solution

Figure 3 can explain the shift in AD curve due to reduction in interest rates at each price level. In figure 3, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 3

A reduction in interest rates decreases the borrowing cost increases the spending.

This leads to a rightward shift of AD curve from AD₁ to AD₂. Thus, it brings the output and price level up. The output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (d):

To determine

Effect on Aggregate Demand and Supply.

Subpart (d):

Expert Solution

Explanation of Solution

A major increase in spending shifts the AD curve to right. Figure 4 is used to explain this situation. In figure 4, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 4

Government expenditure is a key determinant of changes in the aggregate demand. The increase in government spending (spending for health care) increases the aggregate demand leading to a shift of AD curve from AD₁ to AD₂. Any real improvements in healthcare resulting from the spending would ultimately increase the productivity, thereby shifting the AS curve to the right (from AS₁ to AS₂). The equilibrium moves from a to c leading to an increase in output (from Q₁ to Q₃) .It will also move the price level up from P₁ to P₃.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (e):

To determine

Effect on Aggregate Demand and Supply.

Subpart (e):

Expert Solution

Explanation of Solution

The general expectation of surging inflation in the near future will increase the aggregate demand today because the consumers will want to buy products before their prices escalate. This can be illustrated using figure 3. As a result, there will be a rightward shift of AD curve from AD₁ to AD₂ which brings the output and price level up. In figure 3, the output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (f):

To determine

Effect on Aggregate Demand and Supply.

Subpart (f):

Expert Solution

Explanation of Solution

Figure 5 is used to explain this case. In figure 5, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 5

As oil prices fall (oil is an imported resource) due to the disintegration of OPEC, it increases the U.S. aggregate supply. As a result, there will be a rightward shift of AS curve from AS to AS₁. This brings the output level up from Q to Q₁ and price level down from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (g):

To determine

Effect on Aggregate Demand and Supply.

Subpart (g):

Expert Solution

Explanation of Solution

A reduction in the personal income tax rates raises take-home income increases consumer purchases at each possible price level. This is illustrated in figure 3. Tax cuts shift the aggregate demand curve to the right from AD₁ to AD₂ which brings the output and price level up. In figure 3, the output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (h):

To determine

Effect on Aggregate Demand and Supply.

Subpart (h):

Expert Solution

Explanation of Solution

The sizable increase the labor productivity with no change in nominal wages will increase the overall productivity as more output is available for the given input. This increases the aggregate supply thereby shifting the AS curve to the right from AS to AS₁ (Refer Figure 5). This leads to an increase in output (from Q to Q₁) and a decrease in price level from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (i):

To determine

Effect on Aggregate Demand and Supply.

Subpart (i):

Expert Solution

Explanation of Solution

This case can be explained using Figure 2. When there is an increase in nominal wages with no change in productivity, it increases per unit cost of production. This force the AS curve to shift left (from AS to AS₁). The equilibrium position moves from E to T, thus there are a decline in the output (from Q to Q₁) and a rise in the price level (from P to P₁).

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (j):

To determine

Effect on Aggregate Demand and Supply.

Subpart (j):

Expert Solution

Explanation of Solution

Figure 6 shows the impact of increasing demand and decreasing supply.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 6

Figure 6 is used to explain this condition. The horizontal axis in Figure 6 measures the real domestic output whereas price level is measured by the vertical axis. A rise in net exports (higher exports relative to imports) shifts the aggregate demand curve to the right (from AD₁ to AD₂). But, due to the higher input prices, per unit cost is more, leading to a shift of the aggregate supply curve to the left from AS₁ to AS₂. This leads to an increase in output from Q to Q₁ along with an increase in price level from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 32, Problem 6RQ

Subpart (a):

To determine

Effect on Aggregate Demand and Supply.

Subpart (a):

Expert Solution

Explanation of Solution

When consumers fear of an impending economic depression, their spending decline and they tend to save more. This leads to a decrease in AD curve. This can be explained by using figure 1.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 1

In figure 1, horizontal axis represents the real GDP(Gross Domestic Product) and vertical axis represents price level. In this case, the AD curve shifts left (from AD₁ to AD₂), and this moves the equilibrium position from a to c, thus there is a decline in the output (from Q_f to Q₁) and a decline in the price level (from P₁ to P₂), assuming no ratchet effect.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (b):

To determine

Effect on Aggregate Demand and Supply.

Subpart (b):

Expert Solution

Explanation of Solution

When a new tax is imposed on producers, cost of production comes up and there is no incentive to produce more. This leads to a decline in AS curve. This can be explained using figure 2.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 2

In figure 2, horizontal axis represents the real GDP and vertical axis represents price level. In this case, the AS curve shifts left (from AS to AS₁), this moves the equilibrium position from E to T, thus there is a decline in the output (from Q to Q₁) and a rise in the price level (from P to P₁).

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (c):

To determine

Effect on Aggregate Demand and Supply.

Subpart (c):

Expert Solution

Explanation of Solution

Figure 3 can explain the shift in AD curve due to reduction in interest rates at each price level. In figure 3, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 3

A reduction in interest rates decreases the borrowing cost increases the spending.

This leads to a rightward shift of AD curve from AD₁ to AD₂. Thus, it brings the output and price level up. The output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (d):

To determine

Effect on Aggregate Demand and Supply.

Subpart (d):

Expert Solution

Explanation of Solution

A major increase in spending shifts the AD curve to right. Figure 4 is used to explain this situation. In figure 4, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 4

Government expenditure is a key determinant of changes in the aggregate demand. The increase in government spending (spending for health care) increases the aggregate demand leading to a shift of AD curve from AD₁ to AD₂. Any real improvements in healthcare resulting from the spending would ultimately increase the productivity, thereby shifting the AS curve to the right (from AS₁ to AS₂). The equilibrium moves from a to c leading to an increase in output (from Q₁ to Q₃) .It will also move the price level up from P₁ to P₃.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (e):

To determine

Effect on Aggregate Demand and Supply.

Subpart (e):

Expert Solution

Explanation of Solution

The general expectation of surging inflation in the near future will increase the aggregate demand today because the consumers will want to buy products before their prices escalate. This can be illustrated using figure 3. As a result, there will be a rightward shift of AD curve from AD₁ to AD₂ which brings the output and price level up. In figure 3, the output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (f):

To determine

Effect on Aggregate Demand and Supply.

Subpart (f):

Expert Solution

Explanation of Solution

Figure 5 is used to explain this case. In figure 5, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 5

As oil prices fall (oil is an imported resource) due to the disintegration of OPEC, it increases the U.S. aggregate supply. As a result, there will be a rightward shift of AS curve from AS to AS₁. This brings the output level up from Q to Q₁ and price level down from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (g):

To determine

Effect on Aggregate Demand and Supply.

Subpart (g):

Expert Solution

Explanation of Solution

A reduction in the personal income tax rates raises take-home income increases consumer purchases at each possible price level. This is illustrated in figure 3. Tax cuts shift the aggregate demand curve to the right from AD₁ to AD₂ which brings the output and price level up. In figure 3, the output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (h):

To determine

Effect on Aggregate Demand and Supply.

Subpart (h):

Expert Solution

Explanation of Solution

The sizable increase the labor productivity with no change in nominal wages will increase the overall productivity as more output is available for the given input. This increases the aggregate supply thereby shifting the AS curve to the right from AS to AS₁ (Refer Figure 5). This leads to an increase in output (from Q to Q₁) and a decrease in price level from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (i):

To determine

Effect on Aggregate Demand and Supply.

Subpart (i):

Expert Solution

Explanation of Solution

This case can be explained using Figure 2. When there is an increase in nominal wages with no change in productivity, it increases per unit cost of production. This force the AS curve to shift left (from AS to AS₁). The equilibrium position moves from E to T, thus there are a decline in the output (from Q to Q₁) and a rise in the price level (from P to P₁).

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (j):

To determine

Effect on Aggregate Demand and Supply.

Subpart (j):

Expert Solution

Explanation of Solution

Figure 6 shows the impact of increasing demand and decreasing supply.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 6

Figure 6 is used to explain this condition. The horizontal axis in Figure 6 measures the real domestic output whereas price level is measured by the vertical axis. A rise in net exports (higher exports relative to imports) shifts the aggregate demand curve to the right (from AD₁ to AD₂). But, due to the higher input prices, per unit cost is more, leading to a shift of the aggregate supply curve to the left from AS₁ to AS₂. This leads to an increase in output from Q to Q₁ along with an increase in price level from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 32, Problem 6RQ

Subpart (a):

To determine

Effect on Aggregate Demand and Supply.

Subpart (a):

Expert Solution

Explanation of Solution

When consumers fear of an impending economic depression, their spending decline and they tend to save more. This leads to a decrease in AD curve. This can be explained by using figure 1.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 1

In figure 1, horizontal axis represents the real GDP(Gross Domestic Product) and vertical axis represents price level. In this case, the AD curve shifts left (from AD₁ to AD₂), and this moves the equilibrium position from a to c, thus there is a decline in the output (from Q_f to Q₁) and a decline in the price level (from P₁ to P₂), assuming no ratchet effect.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (b):

To determine

Effect on Aggregate Demand and Supply.

Subpart (b):

Expert Solution

Explanation of Solution

When a new tax is imposed on producers, cost of production comes up and there is no incentive to produce more. This leads to a decline in AS curve. This can be explained using figure 2.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 2

In figure 2, horizontal axis represents the real GDP and vertical axis represents price level. In this case, the AS curve shifts left (from AS to AS₁), this moves the equilibrium position from E to T, thus there is a decline in the output (from Q to Q₁) and a rise in the price level (from P to P₁).

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (c):

To determine

Effect on Aggregate Demand and Supply.

Subpart (c):

Expert Solution

Explanation of Solution

Figure 3 can explain the shift in AD curve due to reduction in interest rates at each price level. In figure 3, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 3

A reduction in interest rates decreases the borrowing cost increases the spending.

This leads to a rightward shift of AD curve from AD₁ to AD₂. Thus, it brings the output and price level up. The output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (d):

To determine

Effect on Aggregate Demand and Supply.

Subpart (d):

Expert Solution

Explanation of Solution

A major increase in spending shifts the AD curve to right. Figure 4 is used to explain this situation. In figure 4, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 4

Government expenditure is a key determinant of changes in the aggregate demand. The increase in government spending (spending for health care) increases the aggregate demand leading to a shift of AD curve from AD₁ to AD₂. Any real improvements in healthcare resulting from the spending would ultimately increase the productivity, thereby shifting the AS curve to the right (from AS₁ to AS₂). The equilibrium moves from a to c leading to an increase in output (from Q₁ to Q₃) .It will also move the price level up from P₁ to P₃.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (e):

To determine

Effect on Aggregate Demand and Supply.

Subpart (e):

Expert Solution

Explanation of Solution

The general expectation of surging inflation in the near future will increase the aggregate demand today because the consumers will want to buy products before their prices escalate. This can be illustrated using figure 3. As a result, there will be a rightward shift of AD curve from AD₁ to AD₂ which brings the output and price level up. In figure 3, the output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (f):

To determine

Effect on Aggregate Demand and Supply.

Subpart (f):

Expert Solution

Explanation of Solution

Figure 5 is used to explain this case. In figure 5, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 5

As oil prices fall (oil is an imported resource) due to the disintegration of OPEC, it increases the U.S. aggregate supply. As a result, there will be a rightward shift of AS curve from AS to AS₁. This brings the output level up from Q to Q₁ and price level down from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (g):

To determine

Effect on Aggregate Demand and Supply.

Subpart (g):

Expert Solution

Explanation of Solution

A reduction in the personal income tax rates raises take-home income increases consumer purchases at each possible price level. This is illustrated in figure 3. Tax cuts shift the aggregate demand curve to the right from AD₁ to AD₂ which brings the output and price level up. In figure 3, the output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (h):

To determine

Effect on Aggregate Demand and Supply.

Subpart (h):

Expert Solution

Explanation of Solution

The sizable increase the labor productivity with no change in nominal wages will increase the overall productivity as more output is available for the given input. This increases the aggregate supply thereby shifting the AS curve to the right from AS to AS₁ (Refer Figure 5). This leads to an increase in output (from Q to Q₁) and a decrease in price level from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (i):

To determine

Effect on Aggregate Demand and Supply.

Subpart (i):

Expert Solution

Explanation of Solution

This case can be explained using Figure 2. When there is an increase in nominal wages with no change in productivity, it increases per unit cost of production. This force the AS curve to shift left (from AS to AS₁). The equilibrium position moves from E to T, thus there are a decline in the output (from Q to Q₁) and a rise in the price level (from P to P₁).

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (j):

To determine

Effect on Aggregate Demand and Supply.

Subpart (j):

Expert Solution

Explanation of Solution

Figure 6 shows the impact of increasing demand and decreasing supply.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 6

Figure 6 is used to explain this condition. The horizontal axis in Figure 6 measures the real domestic output whereas price level is measured by the vertical axis. A rise in net exports (higher exports relative to imports) shifts the aggregate demand curve to the right (from AD₁ to AD₂). But, due to the higher input prices, per unit cost is more, leading to a shift of the aggregate supply curve to the left from AS₁ to AS₂. This leads to an increase in output from Q to Q₁ along with an increase in price level from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 32, Problem 6RQ

Subpart (a):

To determine

Effect on Aggregate Demand and Supply.

Subpart (a):

Expert Solution

Explanation of Solution

When consumers fear of an impending economic depression, their spending decline and they tend to save more. This leads to a decrease in AD curve. This can be explained by using figure 1.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 1

In figure 1, horizontal axis represents the real GDP(Gross Domestic Product) and vertical axis represents price level. In this case, the AD curve shifts left (from AD₁ to AD₂), and this moves the equilibrium position from a to c, thus there is a decline in the output (from Q_f to Q₁) and a decline in the price level (from P₁ to P₂), assuming no ratchet effect.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (b):

To determine

Effect on Aggregate Demand and Supply.

Subpart (b):

Expert Solution

Explanation of Solution

When a new tax is imposed on producers, cost of production comes up and there is no incentive to produce more. This leads to a decline in AS curve. This can be explained using figure 2.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 2

In figure 2, horizontal axis represents the real GDP and vertical axis represents price level. In this case, the AS curve shifts left (from AS to AS₁), this moves the equilibrium position from E to T, thus there is a decline in the output (from Q to Q₁) and a rise in the price level (from P to P₁).

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (c):

To determine

Effect on Aggregate Demand and Supply.

Subpart (c):

Expert Solution

Explanation of Solution

Figure 3 can explain the shift in AD curve due to reduction in interest rates at each price level. In figure 3, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 3

A reduction in interest rates decreases the borrowing cost increases the spending.

This leads to a rightward shift of AD curve from AD₁ to AD₂. Thus, it brings the output and price level up. The output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (d):

To determine

Effect on Aggregate Demand and Supply.

Subpart (d):

Expert Solution

Explanation of Solution

A major increase in spending shifts the AD curve to right. Figure 4 is used to explain this situation. In figure 4, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 4

Government expenditure is a key determinant of changes in the aggregate demand. The increase in government spending (spending for health care) increases the aggregate demand leading to a shift of AD curve from AD₁ to AD₂. Any real improvements in healthcare resulting from the spending would ultimately increase the productivity, thereby shifting the AS curve to the right (from AS₁ to AS₂). The equilibrium moves from a to c leading to an increase in output (from Q₁ to Q₃) .It will also move the price level up from P₁ to P₃.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (e):

To determine

Effect on Aggregate Demand and Supply.

Subpart (e):

Expert Solution

Explanation of Solution

The general expectation of surging inflation in the near future will increase the aggregate demand today because the consumers will want to buy products before their prices escalate. This can be illustrated using figure 3. As a result, there will be a rightward shift of AD curve from AD₁ to AD₂ which brings the output and price level up. In figure 3, the output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (f):

To determine

Effect on Aggregate Demand and Supply.

Subpart (f):

Expert Solution

Explanation of Solution

Figure 5 is used to explain this case. In figure 5, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 5

As oil prices fall (oil is an imported resource) due to the disintegration of OPEC, it increases the U.S. aggregate supply. As a result, there will be a rightward shift of AS curve from AS to AS₁. This brings the output level up from Q to Q₁ and price level down from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (g):

To determine

Effect on Aggregate Demand and Supply.

Subpart (g):

Expert Solution

Explanation of Solution

A reduction in the personal income tax rates raises take-home income increases consumer purchases at each possible price level. This is illustrated in figure 3. Tax cuts shift the aggregate demand curve to the right from AD₁ to AD₂ which brings the output and price level up. In figure 3, the output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (h):

To determine

Effect on Aggregate Demand and Supply.

Subpart (h):

Expert Solution

Explanation of Solution

The sizable increase the labor productivity with no change in nominal wages will increase the overall productivity as more output is available for the given input. This increases the aggregate supply thereby shifting the AS curve to the right from AS to AS₁ (Refer Figure 5). This leads to an increase in output (from Q to Q₁) and a decrease in price level from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (i):

To determine

Effect on Aggregate Demand and Supply.

Subpart (i):

Expert Solution

Explanation of Solution

This case can be explained using Figure 2. When there is an increase in nominal wages with no change in productivity, it increases per unit cost of production. This force the AS curve to shift left (from AS to AS₁). The equilibrium position moves from E to T, thus there are a decline in the output (from Q to Q₁) and a rise in the price level (from P to P₁).

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Subpart (j):

To determine

Effect on Aggregate Demand and Supply.

Subpart (j):

Expert Solution

Explanation of Solution

Figure 6 shows the impact of increasing demand and decreasing supply.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 6

Figure 6 is used to explain this condition. The horizontal axis in Figure 6 measures the real domestic output whereas price level is measured by the vertical axis. A rise in net exports (higher exports relative to imports) shifts the aggregate demand curve to the right (from AD₁ to AD₂). But, due to the higher input prices, per unit cost is more, leading to a shift of the aggregate supply curve to the left from AS₁ to AS₂. This leads to an increase in output from Q to Q₁ along with an increase in price level from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 6

Chapter 32, Problem 6RQ

Subpart (a):

To determine

Effect on Aggregate Demand and Supply.

Subpart (a):

Expert Solution

Explanation of Solution

When consumers fear of an impending economic depression, their spending decline and they tend to save more. This leads to a decrease in AD curve. This can be explained by using figure 1.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 1

In figure 1, horizontal axis represents the real GDP(Gross Domestic Product) and vertical axis represents price level. In this case, the AD curve shifts left (from AD₁ to AD₂), and this moves the equilibrium position from a to c, thus there is a decline in the output (from Q_f to Q₁) and a decline in the price level (from P₁ to P₂), assuming no ratchet effect.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 7

Chapter 32, Problem 6RQ

Subpart (a):

To determine

Effect on Aggregate Demand and Supply.

Answer 8

Subpart (a):

Expert Solution

Explanation of Solution

When consumers fear of an impending economic depression, their spending decline and they tend to save more. This leads to a decrease in AD curve. This can be explained by using figure 1.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 1

In figure 1, horizontal axis represents the real GDP(Gross Domestic Product) and vertical axis represents price level. In this case, the AD curve shifts left (from AD₁ to AD₂), and this moves the equilibrium position from a to c, thus there is a decline in the output (from Q_f to Q₁) and a decline in the price level (from P₁ to P₂), assuming no ratchet effect.

Answer 9

Subpart (a):

Expert Solution

Answer 10

Subpart (a):

Expert Solution

Answer 11

Expert Solution

Answer 12

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 13

Subpart (b):

To determine

Effect on Aggregate Demand and Supply.

Subpart (b):

Expert Solution

Explanation of Solution

When a new tax is imposed on producers, cost of production comes up and there is no incentive to produce more. This leads to a decline in AS curve. This can be explained using figure 2.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 2

In figure 2, horizontal axis represents the real GDP and vertical axis represents price level. In this case, the AS curve shifts left (from AS to AS₁), this moves the equilibrium position from E to T, thus there is a decline in the output (from Q to Q₁) and a rise in the price level (from P to P₁).

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 14

Subpart (b):

To determine

Effect on Aggregate Demand and Supply.

Answer 15

Subpart (b):

Expert Solution

Explanation of Solution

When a new tax is imposed on producers, cost of production comes up and there is no incentive to produce more. This leads to a decline in AS curve. This can be explained using figure 2.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 2

In figure 2, horizontal axis represents the real GDP and vertical axis represents price level. In this case, the AS curve shifts left (from AS to AS₁), this moves the equilibrium position from E to T, thus there is a decline in the output (from Q to Q₁) and a rise in the price level (from P to P₁).

Answer 16

Subpart (b):

Expert Solution

Answer 17

Subpart (b):

Expert Solution

Answer 18

Expert Solution

Answer 19

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 20

Subpart (c):

To determine

Effect on Aggregate Demand and Supply.

Subpart (c):

Expert Solution

Explanation of Solution

Figure 3 can explain the shift in AD curve due to reduction in interest rates at each price level. In figure 3, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 3

A reduction in interest rates decreases the borrowing cost increases the spending.

This leads to a rightward shift of AD curve from AD₁ to AD₂. Thus, it brings the output and price level up. The output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 21

Subpart (c):

To determine

Effect on Aggregate Demand and Supply.

Answer 22

Subpart (c):

Expert Solution

Explanation of Solution

Figure 3 can explain the shift in AD curve due to reduction in interest rates at each price level. In figure 3, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 3

A reduction in interest rates decreases the borrowing cost increases the spending.

This leads to a rightward shift of AD curve from AD₁ to AD₂. Thus, it brings the output and price level up. The output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Answer 23

Subpart (c):

Expert Solution

Answer 24

Subpart (c):

Expert Solution

Answer 25

Expert Solution

Answer 26

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 27

Subpart (d):

To determine

Effect on Aggregate Demand and Supply.

Subpart (d):

Expert Solution

Explanation of Solution

A major increase in spending shifts the AD curve to right. Figure 4 is used to explain this situation. In figure 4, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 4

Government expenditure is a key determinant of changes in the aggregate demand. The increase in government spending (spending for health care) increases the aggregate demand leading to a shift of AD curve from AD₁ to AD₂. Any real improvements in healthcare resulting from the spending would ultimately increase the productivity, thereby shifting the AS curve to the right (from AS₁ to AS₂). The equilibrium moves from a to c leading to an increase in output (from Q₁ to Q₃) .It will also move the price level up from P₁ to P₃.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 28

Subpart (d):

To determine

Effect on Aggregate Demand and Supply.

Answer 29

Subpart (d):

Expert Solution

Explanation of Solution

A major increase in spending shifts the AD curve to right. Figure 4 is used to explain this situation. In figure 4, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 4

Government expenditure is a key determinant of changes in the aggregate demand. The increase in government spending (spending for health care) increases the aggregate demand leading to a shift of AD curve from AD₁ to AD₂. Any real improvements in healthcare resulting from the spending would ultimately increase the productivity, thereby shifting the AS curve to the right (from AS₁ to AS₂). The equilibrium moves from a to c leading to an increase in output (from Q₁ to Q₃) .It will also move the price level up from P₁ to P₃.

Answer 30

Subpart (d):

Expert Solution

Answer 31

Subpart (d):

Expert Solution

Answer 32

Expert Solution

Answer 33

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 34

Subpart (e):

To determine

Effect on Aggregate Demand and Supply.

Subpart (e):

Expert Solution

Explanation of Solution

The general expectation of surging inflation in the near future will increase the aggregate demand today because the consumers will want to buy products before their prices escalate. This can be illustrated using figure 3. As a result, there will be a rightward shift of AD curve from AD₁ to AD₂ which brings the output and price level up. In figure 3, the output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 35

Subpart (e):

To determine

Effect on Aggregate Demand and Supply.

Answer 36

Subpart (e):

Expert Solution

Explanation of Solution

The general expectation of surging inflation in the near future will increase the aggregate demand today because the consumers will want to buy products before their prices escalate. This can be illustrated using figure 3. As a result, there will be a rightward shift of AD curve from AD₁ to AD₂ which brings the output and price level up. In figure 3, the output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Answer 37

Subpart (e):

Expert Solution

Answer 38

Subpart (e):

Expert Solution

Answer 39

Expert Solution

Answer 40

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 41

Subpart (f):

To determine

Effect on Aggregate Demand and Supply.

Subpart (f):

Expert Solution

Explanation of Solution

Figure 5 is used to explain this case. In figure 5, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 5

As oil prices fall (oil is an imported resource) due to the disintegration of OPEC, it increases the U.S. aggregate supply. As a result, there will be a rightward shift of AS curve from AS to AS₁. This brings the output level up from Q to Q₁ and price level down from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 42

Subpart (f):

To determine

Effect on Aggregate Demand and Supply.

Answer 43

Subpart (f):

Expert Solution

Explanation of Solution

Figure 5 is used to explain this case. In figure 5, horizontal axis measures the real GDP and vertical axis measures the price level.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 5

As oil prices fall (oil is an imported resource) due to the disintegration of OPEC, it increases the U.S. aggregate supply. As a result, there will be a rightward shift of AS curve from AS to AS₁. This brings the output level up from Q to Q₁ and price level down from P to P₁.

Answer 44

Subpart (f):

Expert Solution

Answer 45

Subpart (f):

Expert Solution

Answer 46

Expert Solution

Answer 47

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 48

Subpart (g):

To determine

Effect on Aggregate Demand and Supply.

Subpart (g):

Expert Solution

Explanation of Solution

A reduction in the personal income tax rates raises take-home income increases consumer purchases at each possible price level. This is illustrated in figure 3. Tax cuts shift the aggregate demand curve to the right from AD₁ to AD₂ which brings the output and price level up. In figure 3, the output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 49

Subpart (g):

To determine

Effect on Aggregate Demand and Supply.

Answer 50

Subpart (g):

Expert Solution

Explanation of Solution

A reduction in the personal income tax rates raises take-home income increases consumer purchases at each possible price level. This is illustrated in figure 3. Tax cuts shift the aggregate demand curve to the right from AD₁ to AD₂ which brings the output and price level up. In figure 3, the output increases from Q₁ to Q₂ and price level increases from P₁ to P₂.

Answer 51

Subpart (g):

Expert Solution

Answer 52

Subpart (g):

Expert Solution

Answer 53

Expert Solution

Answer 54

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 55

Subpart (h):

To determine

Effect on Aggregate Demand and Supply.

Subpart (h):

Expert Solution

Explanation of Solution

The sizable increase the labor productivity with no change in nominal wages will increase the overall productivity as more output is available for the given input. This increases the aggregate supply thereby shifting the AS curve to the right from AS to AS₁ (Refer Figure 5). This leads to an increase in output (from Q to Q₁) and a decrease in price level from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 56

Subpart (h):

To determine

Effect on Aggregate Demand and Supply.

Answer 57

Subpart (h):

Expert Solution

Explanation of Solution

The sizable increase the labor productivity with no change in nominal wages will increase the overall productivity as more output is available for the given input. This increases the aggregate supply thereby shifting the AS curve to the right from AS to AS₁ (Refer Figure 5). This leads to an increase in output (from Q to Q₁) and a decrease in price level from P to P₁.

Answer 58

Subpart (h):

Expert Solution

Answer 59

Subpart (h):

Expert Solution

Answer 60

Expert Solution

Answer 61

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 62

Subpart (i):

To determine

Effect on Aggregate Demand and Supply.

Subpart (i):

Expert Solution

Explanation of Solution

This case can be explained using Figure 2. When there is an increase in nominal wages with no change in productivity, it increases per unit cost of production. This force the AS curve to shift left (from AS to AS₁). The equilibrium position moves from E to T, thus there are a decline in the output (from Q to Q₁) and a rise in the price level (from P to P₁).

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 63

Subpart (i):

To determine

Effect on Aggregate Demand and Supply.

Answer 64

Subpart (i):

Expert Solution

Explanation of Solution

This case can be explained using Figure 2. When there is an increase in nominal wages with no change in productivity, it increases per unit cost of production. This force the AS curve to shift left (from AS to AS₁). The equilibrium position moves from E to T, thus there are a decline in the output (from Q to Q₁) and a rise in the price level (from P to P₁).

Answer 65

Subpart (i):

Expert Solution

Answer 66

Subpart (i):

Expert Solution

Answer 67

Expert Solution

Answer 68

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 69

Subpart (j):

To determine

Effect on Aggregate Demand and Supply.

Subpart (j):

Expert Solution

Explanation of Solution

Figure 6 shows the impact of increasing demand and decreasing supply.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 6

Figure 6 is used to explain this condition. The horizontal axis in Figure 6 measures the real domestic output whereas price level is measured by the vertical axis. A rise in net exports (higher exports relative to imports) shifts the aggregate demand curve to the right (from AD₁ to AD₂). But, due to the higher input prices, per unit cost is more, leading to a shift of the aggregate supply curve to the left from AS₁ to AS₂. This leads to an increase in output from Q to Q₁ along with an increase in price level from P to P₁.

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.

Answer 70

Subpart (j):

To determine

Effect on Aggregate Demand and Supply.

Answer 71

Subpart (j):

Expert Solution

Explanation of Solution

Figure 6 shows the impact of increasing demand and decreasing supply.

EBK ECONOMICS, Chapter 32, Problem 6RQ , additional homework tip 6

Figure 6 is used to explain this condition. The horizontal axis in Figure 6 measures the real domestic output whereas price level is measured by the vertical axis. A rise in net exports (higher exports relative to imports) shifts the aggregate demand curve to the right (from AD₁ to AD₂). But, due to the higher input prices, per unit cost is more, leading to a shift of the aggregate supply curve to the left from AS₁ to AS₂. This leads to an increase in output from Q to Q₁ along with an increase in price level from P to P₁.

Answer 72

Subpart (j):

Expert Solution

Answer 73

Subpart (j):

Expert Solution

Answer 74

Expert Solution

Answer 75

Economics Concept Introduction

Concept Introduction:

Aggregate demand (AD): Aggregate demand refers to the total value of the goods and services that are demanded at a particular price in a given period of time.

Aggregate supply (AS): Aggregate supply refers to the total value of the goods and services that are available for purchase at a particular price in a given period of time.