If prices and wages are perfectly flexible, then γ = 0 and changes in aggregate demand have a smaller effect on output. Is this statement true, false, or uncertain? Explain your answer.
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If prices and wages are perfectly flexible, then γ = 0 and changes in aggregate demand have a smaller effect on output.
Is this statement true, false, or uncertain? Explain your answer.
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- What effects would each of the following have on aggregate demand or aggregate supply? Justify your answer. In each case use a diagram to show the expected effects on the equilibrium price level and real output level in the economy. Assume that all other things remain constant and prices are inflexible downward. (a) A reduction in interest rates at each price level (b) A sizable increase in labor productivity. (c) The nation’s currency appreciates against its major trading partners .Suppose that the inflation rate remains constant while output increases and the unemployment rate decreases. Using an aggregate demand and supply graph, show how this scenario is possible.Suppose that an economy wants to boost available labor hours in order to increase aggregate supply. What is the best way to accomplish this?
- In our Aggregate Demand and Supply model, a decrease in Aggregate Demand would cause which of the following in the short run? Group of answer choices a) neither deflation nor inflation b) deflation and recession c) inflation and economic growth d) inflation and recession e) deflation and economic growthAnswer as True, False, or Uncertain, and explain your choice. The natural level of output can be determined by looking at the aggregate supply relation alone.One of your classmates is convinced that the actual amount of output that corresponds to the long-run aggregate supply curve is fixed. What will you say to convince him/her that the opposite is the case?
- Suppose an aggregate supply curve shifts right and this is the only change in the economy. What will certainly NOT happen? Group of answer choices Lower output Lower price level Higher output Aggregate demand curve remains unchangedSuppose an aggregate supply curve shifts right and this is the only change in the economy. What will certainly NOT happen? Group of answer choices: Higher output Lower output Lower price level Aggregate demand curve remains unchanged Which of the following helps to increase employment and decrease inflation? Group of answer choices: Right shift of an aggregate supply curve Right shift of the aggregate demand curve Left shift of the aggregate demand curve Left shift of an aggregate supply curveIf an economy is at full employment and Aggregate Demand decreases suddenly, this will cause which of the following? a) an increase in underemployment b) a reduction in tax revenues collected c) a decrease in GDP d) All of the choices is correct e) an increase in unemployment
- Consider the graph below. Assume that, initially, an economy has long-run aggregate supply corresponding to LRAS, short-run supply corresponding to SRAS₁, and aggregate demand corresponding to AD₁. Where will the new equilibrium be in the short run if income tax hikes cause workers to lower their expectations of future income? (Do not assume that all curves shown actually come into play.) Price level (P) 100 95 90 Click or tap the appropriate place in the image. LRAS SRAS SRAS AD₁ AD₁ Real GDP (Y)Are all prices in the economy equally inflexible? Which ones show large amounts of short-run flexibility?Assess the validity of the following statement: An increase in government spending, the target inflation rate or the monetary base shifts the aggregate demand curve to the right.
