Real business cycle theorists maintain that macroeconomic fluctuations arise principally from supply-side changes in technology and resource availability. The following graph shows the long-run aggregate supply curve for a hypothetical economy where the initial full-employment output level is $12.5 trillion. It also shows an initial aggregate demand curve (AD1) and two possible shifts in aggregate demand, either to the right (AD2) or to the left ( AD3). Initially, the economy is operating at its full-employment output level ($12.5 trillion) and a price level of 145. Then, major technological innovations cause the economy's full-employment output level to increase by $500 billion ($0.5 trillion). Use the green line (triangle symbols) to show the long-run aggregate supply curve (LRAS2) after the major production innovations. PRICE LEVEL 195 185 175 165 155 145 135 125 115 105 95 LRAS AD AD AD 2 10.0 10.5 11.0 11.5 12.0 12.5 13.0 13.5 14.0 14.5 15.0 REAL GDP (Trillions of dollars) LRAS + New Equilibrium
Real business cycle theorists maintain that macroeconomic fluctuations arise principally from supply-side changes in technology and resource availability. The following graph shows the long-run aggregate supply curve for a hypothetical economy where the initial full-employment output level is $12.5 trillion. It also shows an initial aggregate demand curve (AD1) and two possible shifts in aggregate demand, either to the right (AD2) or to the left ( AD3). Initially, the economy is operating at its full-employment output level ($12.5 trillion) and a price level of 145. Then, major technological innovations cause the economy's full-employment output level to increase by $500 billion ($0.5 trillion). Use the green line (triangle symbols) to show the long-run aggregate supply curve (LRAS2) after the major production innovations. PRICE LEVEL 195 185 175 165 155 145 135 125 115 105 95 LRAS AD AD AD 2 10.0 10.5 11.0 11.5 12.0 12.5 13.0 13.5 14.0 14.5 15.0 REAL GDP (Trillions of dollars) LRAS + New Equilibrium
Chapter20: Aggregate Demand And Supply
Section: Chapter Questions
Problem 8SQP
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