Use the following figure to answer the next question.Price LevelASAD₂AD₁Y3Real GDPSuppose the economy is currently at full employment with aggregate demand curve AD2. A further increase in consumption and investment spending will causeCMultiple ChoicerawY₁ Y₂Ocost-push inflation, and the new equilibrium output will be more than Y2,O1!cost-push inflation, and the new equilibrium output will be less than Y2.Odemand-pull inflation, and the new equilibrium output will be less than Y2.demand-pull inflation, and the new equilibrium output will be more than Y2.@922-QWCa$%0554#3< Prev11 of 18Next >MacBook ProERTח6627&8* 00Y U619田FGHK0

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Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 6SCQ: Suppose concerns about the size of the federal budget deficit lead the U.S. Congress to cut all...

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Suppose concerns about the size of the federal budget deficit lead the U.S. Congress to cut all funding for research and development for ten years. Assuming this has an impact on technology growth, what does the AD/AS model predict would be the likely effect on equilibrium GDP and the price level?
Refer to the accompanying figure. LRAS Inflation a A 0, y' Output O O An economy is currently in long-run equilibrium at point B, at an inflation rate of m, which is too high to sustain economic growth. If an anti-inflationary policy is enacted, the economy will be in short-run equilibrium at point creating gap. O SRAS O SRAS AD' AD A; an expansionary A; a recessionary D; a recessionary D; an expansionary
Assume an economy operates in the intermediaterange of its aggregate supply curve. State thedirection of shift for the aggregate demandor aggregate supply curve for each of thefollowing changes in conditions. What is theeffect on the price level? On real GDP? Onemployment?a. The price of crude oil rises significantly.b. Spending on national defense doubles.c. The costs of imported goods increase.d. An improvement in technology raises laborproductivity.
The economy begins in longcrun equilibrium. Thenone day, the president appoints a new chair of theFederal Reserve. 11\is new chainnan is well known forher view that inflation is not a major problcn1 for aneconomy.a. How would this news affect the price level thatpeople would expect to prevail?b. How would this change in the expected pricelevel affect the nonlinal wage that workers andfmn.s agree to in their new labor contracts?c. How would this change in the nonlinal wageaffect the profitability of producing goods andservia,s at any given price level?d. How docs this change in profitability affect theshort-run aggregate-supply curve?e. ff aggregate demand is held constant, how docsthis sllift in the aggregate-supply curve affect theprice level and the quantity of output produced?f. Do you think this Fed chainnan was a goodappointment?
Congratulationst You have been appointed an economic policy adviser to the United States, You are told that the economy is significantly abowe futtemplyoment GDP. Based on this inlormation, how can the economy would adjust to reach LR.SR Equilbrium (Classical View)? The economy wilt experience low unemployment rate, pushing wages up, and increasing the pelces of a key input (labor). shatting the sAS to the left (up). The economy will experience high unemployment rate, pushing wages down, and reducing the prices of a key input (labor). shiting the SAS to the right (down). The econoriny wil experience low unemployment rate, decreasing inceme, which will eventually shift the AD to the left. The eooncmy will experience low unemployment rate, pushing wages up, and increasing the prices of a key input (labor), shiting the sAs to the night (down).
When the economy is experiencing a recession, why would aneoclassical e conomist be unlikely toargue for aggressive policy to stimulate aggregate demandand return the economy to full employment? Explain your answer.
Use the following figure to answer the next question. Price Level P MHURBODDES 0 E 40 18 X DOBO GODD a 4 9 OA) low unemployment OB) expansion OC) hyperinflation OD) stagflation 9 AS₁ Q₁ Q₂ Q3 Real Domestic Output AS₂ AD₁ AD₂ In the figure, AD2 and AS2 represent the original aggregate supply and demand curves. If Q3 is full-employment output, then AD2 and AS₁ best represent a period of
1Why low rate inflation is considered necessary for economic grwoth? Oa It does not affect the purchasing power of wages Ob. It indicates that the currency is in continuous demand by the people Oc taffects only the rich and not the poor Od itact as an incentive to boost in supply in the economy 2When the economy is in Keynesian macroeconomic equilibrium, planned investment is greater than actual investment. O a False O b. True 3Government fixes the floor and ceiling price which will not allow the producers to increase the price on their wish, this is a type of. O a Physical control called price pegging O b. Monetary policy control measures O. Physical control called price tagging Od. Fiscal policy control measures O e None 4Rising output coupled with falling prices is called stagflation O a. False O b. True 5The Value of marginal propensity to consume lies O a. O to 1 O b. Less than zero Oc -1 to 1 Od. Between O to 1 6The Central Bank way to control inflation is Oa Monetary policy…
In the diagram, the economy has Aggregate price level LRAS SRAS, P, Aggregate Demand Yp Y, Real GDP An inflationary gap, so in the long run wages will fall, causing AD curve ti shift to the left. An inflationary gap, so in the long run wages will rise, causing the SRAS curve to shift to the left. O A recessionary gap, so in the long run wages will fall, causing the AD curve to shift to the left. O A recessionary gap, so in the long run wages will fall, causing the SRAS curve to shift to the right.
Price Level 0 AS₁ a ASO b c Real GDP Refer to the figure above. If aggregate supply is AS, and aggregate demand is ADo, then: a surplus of real output of gh yould f represents a price level that would result in a surplus of real output of ac f represents a price level that would result in a shortage of real output of ac f represents a price level that would result in a surplus of real output of a at any price level above g. a shortage of real output would occur occur
Illustrate each of the following situations with a graphshowing AS and AD curves, and explain what happensto the equilibrium values of the price level and aggregateoutput:a. A decrease in G with the money supply held constant bythe Fedb. A decrease in the price of oil with no change ingovernment spendingc. An increase in Z with no change in governmentspendingd. An increase in the price of oil and a decrease in G
09. The left-hand Which of the following statements is tru about the diagrams above depicting the macroeconommy in both Keynesian and Classical frameworks and a change from AEo to AE* and ADo to AD*? a) The left-hand diagrams show the effect of an increase in Aggregare Expenditures (and Aggregate Demand), where the short-run Aggregate Supply is horizontal, meaning a constant products price level. b) The right hand diagrams show the effect of an increase in Aggregate Expenditrues (and Aggregate DEmand), where short-run Aggregate Supply is vertical (constant Aggregate Quantity Supplied). c) The left-hand diagrams illustrate the Keynesian range of the shor-run Aggregate Supply curve, where Keynesian expansionary policy does not cause any inflation and thus is very effective. d) The right-hand diagrams illustrate the Classical or Monetarist range of the short-run Aggregate Supply curve, where Keynesian expansionary policy is totally dissipated in…

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