PRICE LEVEL100LRAS959085801275706560606570758085OUTPUT (Billions of dollars)ASADAD909520100ㅁASLRAS(?)The short-run economic outcome resulting from the increase in production costs is known asSuppose now that the government decides not to take any action in response to the short-run impact of the higher oil prices.In the long run, given that the government does nothing, the output level in the economy will equal $billion and the price level will equal 9. Economic fluctuations IIThe following graph shows the aggregate demand curve (AD), the short-run aggregate supply curve (AS), and the long-run aggregate supply curve(LRAS) for a hypothetical economy. Initially, the expected price level equals the actual price level, and the economy experiences long-run equilibriumat a natural level of output of $80 billion.Suppose war in the world's main oil-producing region sharply reduces the world oil supply, causing oil prices to rise and increasing the costs ofproducing goods and services.Use the graph to help you answer the questions about the short-run and long-run effects of the increase in production costs that follow. (Note: Youwill not be graded on any adjustments made to the graph.)Hint: For simplicity, ignore any possible impact of the higher oil prices on the natural level of output.

The aggregate demand refers to the total demand for all the goods and services produced in an…

PRICE LEVEL 10 100 LRAS 95 AS AD 90 85 80 6 75 75 70 65 60 60 65 70 75 80 85 OUTPUT (Billions of dollars) AD 90 90 95 80 100 AS LRAS ? The short-run economic outcome resulting from the increase in production costs is known as Suppose now that the government decides not to take any action in response to the short-run impact of the higher oil prices. In the long run, given that the government does nothing, the output level in the economy will equal $ billion and the price level will equal

PRICE LEVEL 10 100 LRAS 95 AS AD 90 85 80 6 75 75 70 65 60 60 65 70 75 80 85 OUTPUT (Billions of dollars) AD 90 90 95 80 100 AS LRAS ? The short-run economic outcome resulting from the increase in production costs is known as Suppose now that the government decides not to take any action in response to the short-run impact of the higher oil prices. In the long run, given that the government does nothing, the output level in the economy will equal $ billion and the price level will equal

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter15: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 8PA

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Use Table 26.3 to answer the following questions. Sketch an aggregate supply and aggregate demand diagram. What is the equilibrium output and price level? If aggregate demand shifts right, what is equilibrium output? If aggregate demand shifts left, what is equilibrium output? In this scenario, would you suggest using aggregate demand to alter the level of output or to control any inflationary increases in the price level?
Suppose the economy is operating at potential GDP when It experiences an increase in export demand. How might the economy increase production of exports to meet this demand, given that the economy is already at full employment?
If households decide to save a larger portion of their income, what effect would this have on the output, employment, and price level in the short run? What about the long run?
4. Equilibrium The following table shows the real output demanded and supplied at various price levels in a hypothetical economy. Real Output Demanded (Billions of dollars) 10 20 30 50 80 Price Level (Index number) 160 120 80 40 20 Real Output Supplied (Billions of dollars) 85 80 70 50 20 On the following graph, use the blue points (circle symbol) to plot the aggregate demand (Initial AD) curve for the economy. Then use the orange points (square symbol) to plot the aggregate supply (AS) curve for the economy.
Note: Line segments will automatically connect the points. PRICE LEVEL (Billions of dollars) 200 160 120 0 80 160 240 REAL GDP (Index numbers) The equilibrium price level is 320 400 Initial AD The change in government spending the multiplier effect. SRAS New AD ✓, and the equilibrium level of real output is Suppose that the government spending increases by $16 billion and the expenditure multiplier in this economy is 5. On the previous graph, use the purple points (diamond symbols) to illustrate the effect of the increase in government spending on the aggregate demand (New AD) curve. the equilibrium level of real output by . The price level increase
Again, the following graph shows the economy in long-run equilibrium at the expected price level of 5 and potential output of $5 trillion before the decrease in foreign spending on domestic goods associated with the recession abroad. Now, on the following exhibit, show the long-run impact of the economic turmoil abroad by shifting both the short-run aggregate demand (AD) curve and the short-run aggregate supply (SRAS) curve to the appropriate positions. Assume that the economic turmoil abroad does not cause a change in the economy's resources, technology, or productivity.) Note: You will not be graded on any changes you make to the graph. VEL PRICE 10 2 0 0 2 LRAS 4 6 REAL GDP (Trillions of dollars) AD 8 SRAS 10 AD In the long run, as a result of the economic turmoil abroad, the price level potential output, and the unemployment rate -- SRAS During the transition from the short run to the long run, price level expectations will ▼curve will shift to the . (?) , and the ▼, the quantity…
R 9. Economic fluctuations II The following graph shows the aggregate demand curve (AD), the short-run aggregate supply curve (AS), and the long-run aggregate supply cur LRAS) for a hypothetical economy. Initially, the expected price level equals the actual price level, and the economy experiences long-run equilibriu at a natural level of output of $110 billion. Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs of producing goods and services. Use the graph to help you answer the questions about the short-run and long-run effects of the increase in production costs that follow. (Note: You will not be graded on any adjustments made to the graph). Hint: For simplicity, ignore any possible impact of the severe weather on the natural level of output. PRICE LEVEL 130 125 120 115 110 105 100 95 90 90 LRAS AS, AD 95 -100 105 110 115 120 125 130 OUTPUT (Billions of dollars) AD AS LRAS The short-run…
6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output supplied by firms can deviate from the natural level of output if the actual price level deviates from the expected price level in the economy. A number of theories explain reasons why this might happen. For example, the sticky-price theory asserts that the output prices of some goods and services adjust slowly to changes in the price level. Suppose firms announce the prices for their products in advance, based on an expected price level of 100 for the coming year. Many of the firms sell their goods through catalogs and face high costs of reprinting if they change prices. The actual price level turns out to be 90. Faced with high menu costs, the firms that rely on catalog sales choose not to adjust their prices. Sales from catalogs will ▼, and firms that rely on catalogs will respond by ▼ the quantity of output they supply. If enough firms face high costs of adjusting prices, the…
6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output supplied by firms can deviate from the natural level of output if the actual price level deviates from the expected price level in the economy. A number of theories explain reasons why this might happen. For example, the sticky-price theory asserts that the output prices of some goods and services adjust slowly to changes in the price level. Suppose firms announce the prices for their products in advance, based on an expected price level of 100 for the coming year. Many of the firms sell their goods through catalogs and face high costs of reprinting if they change prices. The actual price level turns out to be 90. Faced with high menu costs, the firms that rely on catalog sales choose not to adjust their prices. Sales from catalogs will ▼, and firms that rely on catalogs will respond by the quantity of output they supply. If enough firms face high costs of adjusting prices, the…
6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output that firms supply can deviate from the natural level of output if the actual price level in the economy deviates from the expected price level. Several theories explain how this might happen. For example, the misperceptions theory asserts that changes in the price level can temporarily mislead firms about what is happening to their output prices. Consider a soybean farmer who expects a price level of 100 in the coming year. If the actual price level turns out to be 90, soybean prices will and if the farmer mistakenly assumes that the price of soybeans declined relative to other prices of goods and services, she will respond by the quantity of soybeans supplied. If other producers in this economy mistake changes in the price level for changes in their relative prices, the unexpected decrease in the price level causes the quantity of output supplied to the natural level of output in…
6. Why the aggregate supply curve slopes upward in the short run In the short run, the quantity of output that firms supply can deviate from the natural level of output if the actual price level in the economy deviates from the expected price level. Several theories explain how this might happen. For example, the misperceptions theory asserts that changes in the price level can temporarily mislead firms about what is happening to their output prices. Consider a soybean farmer who expects a price level of 100 in the coming year. If the actual price level turns out to be 90, soybean prices will and if the farmer mistakenly assumes that the price of soybeans declined relative to other prices of goods and services, she will respond by the quantity of soybeans supplied. If other producers in this economy mistake changes in the price level for changes in their relative prices, the unexpected decrease in the price level causes the quantity of output supplied to the natural level of output in…
7. Determinants of aggregate supply The following graph shows a decrease in short-run aggregate supply (AS) in a hypothetical economy where the currency is the dollar. Specifically, the short-run aggregate supply curve shifts to the left from AS1AS1 to AS2AS2, causing the quantity of output supplied at a price level of 100 to fall from $200 billion to $150 billion. The following table lists several determinants of short-run aggregate supply. Complete the table by selecting the changes in each scenario necessary to decrease short-run aggregate supply. Change Necessary to Decrease AS Technology (declines/improves) Human capital. (declines/improves) Inflation expectations. (declines/improves)