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

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter20: Aggregate Demand And Supply

Section: Chapter Questions

Problem 8SQP

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The graph below depicts an increase in aggregate demand due to an increase in net exports. This increase in aggregate demand is depicted as a shift from AD to AD₁. Price Level LRAS X AD Real GDP AS AD Tools AS, 0 a. In the long run, aggregate supply will adjust to move the economy back to the full-employment level of output. Show this shift using the graph above. Instructions: Use the tool provided "AS₁" to show the movement back to full-employment output. Plot only the endpoints of the line, keeping AS, parallel to AS with the appropriate Intersection (2 points total). b. How does the new long-run equilibrium compare to the Initial full-employment level before the Increase in net exports? O The price level is higher, but output is lower. O The price level is lower, but output remains the same. O The price level is lower, but output is higher. O The price level is higher, but output remains the same.
on Indicate whether the following factor will affect aggregate demand (AD) or aggregate supply (AS) and whether the effect would be an increase or a decrease. Then indicate what will happen to the price level and the level of Real GDP and what type of equilibrium will result assuming that the economy is initially in long-run equilibrium. a) A decrease in the nominal wage rate. b) A decrease in exports. c) A decrease in the exchange rate. d) The discovery of vast new oil field in AD no effect decrease + increase no effect AS increase no effect increase increase decrease decrease decrease Real GDP increase decrease increase increase Equilibrium recessionary gap ⇒ inflationary gap inflationary gap inflationary gap AP ? Q Fir
Consider a macro-economy that was initially at equilibrium. Using an aggregate demand and aggregate supply diagram model of the economy, graphically illustrate and discuss the short-run and long-run effectsof the following events upon the economy:(a) The imposition of a carbon tax upon local big polluting companies;(b) An appreciation in the foreign exchange rate value of the economy’s currency;(c) A major trading partner’s economy fall into recession;(d) The country’s main exports fall in price while the goods the country imports from abroad rise in price
For each situation below, analyse whether it shifts the aggregate demand (AD) curve, the aggregate-supply (AS) curve, both, or neither. Then, if it does shift a curve, construct the AD-AS diagram to show the effect on the economy in the long-run. a) One extraordinary impact of COVID-19 pandemic to the U.S. economy is a massive increase in saving. U.S. recorded nearly tripled saving over the first two quarters of 2020, from $1.59 trillion annualized in the first quarter to $4.69 trillion in the second, which is by far the biggest increase in modern history. b) The prolonged monsoon rain has caused the production of vegetables in Cameron Highlands fell by about 30%. It has severely impacted a lot of crops, including fruits and flowers. Besides, labor shortages due to the pandemic makes the matters worse.
Assume an economy operates in the intermediate range of its aggregate supply curve. State the direction of shift for the aggregate demand curve or aggregate supply curve for each of the following changes in conditions. What is the effect on the price level? On real GDP? On employment? a. The price of crude oil rises significantly (300%, say) raising the price of energy generally. b. Spending on national defense doubles. c. Investment spending falls as firms expect slower sales growth. d. An improvement in technology raises labor productivity. e. The United States raises exports of new passenger aircraft to China.
The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model Figure 8.3 U.S. Price Level B O AD, toAD; O AD, to AD₂ O AD₂ to AD₁ O AS, to AS; AS; to AS₂ 100 200 300 400 AS3 AS₁ AD₂ 500 Real GDP (billions of dollars) AD AS₂ AD3 In Figure 8.3, which of the following shifts would result in stagflation (economic stagnation and inflation)?
Suppose an economy's macro equilibrium is such that a shift in either AD or AS (or both) to the right is desired. From this we can conclude that the economy may be experiencing O wartime production O economic growth O excess demand O unemployment
Assume the economy is initially in equilibrium with desired aggregate expenditure equal to real GDP at point W. The price level is Po Now, suppose there is an exogenous rise in the price level to P₁. Which of the following statements describes the likely macroeconomic effects? OA. The AE curve shifts to AE2, a new equilibrium is established at point V, and the AD curve shifts from AD to AD, and equilibrium moves from point D to point B. OB. The AE curve shifts to AE₁, a new equilibrium is established at point U, and the economy moves from point D to point A along AD C. The AE curve shifts to AE2, a new equilibrium is established at point V, and the economy moves from point D to point G along AD OD. The AE curve shifts to AE₁, a new equilibrium is established at point U, and the AD curve shifts from AD to AD¹, and equilibrium from point D to point B. CITO Desired Aggregate Expenditure Price Level 459 W. Yo Real GDP A PoC P2F AE=Y AE₂ B DE Y₁ Yo Y₂ Real GDP AEO AE₁ AD ADO
Arrange these statements in sequence to explain why the short run aggregate supply (SR AS) curve slopes upward. Suppositions as a starting point Conclusion as to why the SR AS curve slopes upward Answer Bank At the macroeconomic level, the increase in aggregate demand (AD) corresponds to a shift in the firms' demand curve, whereas the firms'supply curve remains fixed. Since customers are demanding more of the firms'product, the firms' demand curves increase, which increases prices and output. The firms'willingness to supply more output at a higher price at a micro level shows a positive relationship, which is then also reflected at the macro level with an upward sloping SR AS curve.
The aggregate demand and the aggregate supply model allows us to examine how a variety of events can affect the economy. Explain the shape of aggregate demand curve. How do Classical and Keynesian economists differ in their view of the aggregate supply curve? In your own words, discuss which of the four sources identified with aggregate demand has caused a change in the aggregate demand for a product or service you or your employer use. Share the effect that source has had on how you or your employer contribute to the measurement of aggregate demand.
Use the AS-AD model to analyze the impact on the U.S. economy as a result of each of the listed events. Mention if AD and/or AS shift and in which direction. Also explain what the country will experience with respect to increase or decrease in short-run equilibrium real GDP and increase or decrease in the equilibrium price level. For each event, assume that the economy is originally in a full- employment equilibrium, mention if in the new equilibrium there is a recessionary gap or an inflationary gap. A) Congress raises income taxes. B) The Federal Reserve decreases the target for the federal funds rate. C) Migration to the US increases the working- age population. DJ Appreciation in the international value of the dollar.
Suppose that you have an AEF at a price level of p = $100 given by: AEF = 1,200+ 0.40Y Suppose also that for every $1 increase in the price level, desired consumtion decreases by $1. Given this, what is the slope of Aggregate Demand (AD) in the AD-AS model? Note: round your answers to three decimal places.