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. prices will 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 and it the farmer mistakenly assumes that the price of soybeans declined relative to other prices of goods and services, 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 level of output in the short run. she will respond by the natural Suppose the economy's short-run aggregate supply (AS) curve is given by the following equation: Quantity of Output Supplied Natural Level of Output + ax (Price Level A-Price Level) The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a-$4 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $4 billion.. Suppose the natural level of output is $40 billion of real GDP and that people expect a price level of 100. On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange the segments (square symboo) to plot the economy's short-run appregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105, and 110.
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. prices will 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 and it the farmer mistakenly assumes that the price of soybeans declined relative to other prices of goods and services, 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 level of output in the short run. she will respond by the natural Suppose the economy's short-run aggregate supply (AS) curve is given by the following equation: Quantity of Output Supplied Natural Level of Output + ax (Price Level A-Price Level) The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a-$4 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $4 billion.. Suppose the natural level of output is $40 billion of real GDP and that people expect a price level of 100. On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange the segments (square symboo) to plot the economy's short-run appregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105, and 110.
Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN:9781285165875
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter33: Aggregate Demand And Aggregate Supply
Section: Chapter Questions
Problem 5PA
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Transcribed Image Text: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 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,
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
level of output in the short run.
she will respond by
the natural
Suppose the economy's short-run aggregate supply (AS) curve is given by the following equation:
Quantity of Output Supplied Natural Level of Output + ax (Price Level A-Price Level)
The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume
that a-$4 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural
level of output by $4 billion.
Suppose the natural level of output is $40 billion of real GDP and that people expect a price level of 100.
V
On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange
ine segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105,
and 110.
The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume
that a-$4 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural
level of output by $4 billion.
Suppose the natural level of output is $40 billion of real GDP and that people expect a price level of 100.
On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange
Ine segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105,
and 110,
*******
125
115
110
9 10
20 30 40 50 70 NO
NO
OUTPUT (ons of dollars)
--0-
AS
1x
LRAS
Transcribed Image Text:Suppose the natural level of output is $40 billion of real GDP and that people expect a price level of 100.
On the following graph, use the purple fine (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange
line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 90, 95, 100, 105,
and 110.
PRICE LEVEL
58EESSSS
429
120
115
110
M
N
79
0 10 20
30 40 10 00 70
OUTPUT (Bons of dollars)
80 00100
-0-
AS
LRAS
(?)
The short-run quantity of output supplied by firms will exceed the natural level of output when the actual price level
that people expected.
the price level
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