5. Macroeconomic equilibrium and the ranges of the aggregate supply curveThe following graph shows the aggregate demand (AD1) and aggregate supply (AS) curves for a hypothetical economy with Natural RealSDP of $11 trillion.PRICE LEVEL13012512011511010510095908.085The Simple Keynesian ModelAD₁AS11.09.09.510.010.5REAL GDP (Trillions of dollars)11.512.0ķAD+New Eq? Suppose consumers and businesses become more optimistic about future economic conditions, causing aggregate demand to increase bytotal $0.5 trillion at each price level (after all multiplier effects have taken place).On the previous graph, use the green line (triangle symbol) to show the new aggregate demand curve (AD2). Be sure that AD2 isparallel to AD1 (you can mouse over AD₁ to see its slope). Then use the black drop lines (cross symbol) to indicate the newmacroeconomic equilibrium after the shift of aggregate demand.The increase in aggregate demand leads to a movement along theequilibrium price level torange of the aggregate supply curve, causing theand the equilibrium level of Real GDP to

Aggregate Demand curve is the curve that represents or denote the sum of demands that an economy…

oeconomic equilibrium and the ranges of the aggregate supply curve owing graph shows the aggregate demand (AD1) and aggregate supply (AS) curves for a hypothetical economy with Natural Re $11 trillion. 8.0 85 The Simple Keynesian Model 9.0 AD₁ 9.5 AS 10.0 tions of dollars) 11.5 11.0 10.5 12.0 ķ + New Eq

oeconomic equilibrium and the ranges of the aggregate supply curve owing graph shows the aggregate demand (AD1) and aggregate supply (AS) curves for a hypothetical economy with Natural Re $11 trillion. 8.0 85 The Simple Keynesian Model 9.0 AD₁ 9.5 AS 10.0 tions of dollars) 11.5 11.0 10.5 12.0 ķ + New Eq

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 42CTQ: On a microeconomic demand curve, a decrease in price causes an increase in quantity demanded because...

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COURSE: MACROECONOMICS - IS-LM and/or MUNDELL FLEMING MODELS Refer to 2 different models (and/or conditions) under which an increase in the amount of money circulating in the economy has a NULL impact on GDP. Then, refer to 2 different models (and/or conditions) under which an increase in the amount of money circulating in the economy has a MAXIMUM impact on GDP. EXPLAIN very briefly the mechanism by which each model generates that NULL or MAXIMUM impact on GDP. Hint: 2 conditions under increase of M (money) and how impact null (zero) and maximum on GDP. Example, considering both fiscal or monetary policies or liquidity trap model. Please graph and explain on detail both cases.
6. Macroeconomic equilibrium and the ranges of the aggregate supply curve The following graph shows the aggregate demand (AD₁) and aggregate supply (AS) curves for a hypothetical economy with Natural Real GDP of $11 trillion. ? The Simple Keynesian Model AD₁ 130 125 120 115 110 105 100 95 90 8.0 8.5 9.0 11.5 12.0 9.5 10.0 10.5 11.0 REAL GDP (Trillions of dollars) Suppose consumers and businesses become less optimistic about future economic conditions, causing aggregate demand to decrease by a total $1.5 trillion at each price level (after all multiplier effects have taken place). On the previous graph, use the green line (triangle symbol) to show the new aggregate demand curve (AD2). Be sure that AD2 is parallel to AD₁ (you can mouse over AD₁ to see its slope). Then use the black drop lines (cross symbol) to indicate the new macroeconomic equilibrium after the shift of aggregate demand. range of the aggregate supply curve, causing the equilibrium price The decrease in aggregate demand…
The following graph shows several aggregate demand and aggregate supply curves for an economy whose potential output is $4 trillion. The curves are labeled a, b, c, and d. Three points on the graph are also indicated by grey stars and labeled X, Y, and Z. PRICE LEVEL AD 160 150 140 130 120 LRAS 110 B 100 90 80 0 Description с 1 d X 2 3 6 4 5 REAL GDP (Trillions of dollars) SRAS if the expected price level is 120 Identify which curve on the previous graph corresponds to each of the following descriptions. If the curve described is not shown on the graph, choose Not Shown. In the descriptions, AD represents aggregate demand; SRAS represents short-run aggregate supply; LRAS represents long-run aggregate supply. SRAS if the expected price level is 140 SRAS if the expected price level is 110 a O O O O O b 7 O O O с b O O 8 d O O O O O Not Shown ? O O O O O Suppose the economy is currently in short-run equilibrium at point Z. In this case, the economy is producing at an output level…
Use the following diagram to answer this question Price level or GDP deflator Ro 41- SRAS₂ ----- AD₂ SRAS, SRAS, -11110 AD₁ AD₁ Output or RGDP Suppose the short-run macroeconomic equilibrium is at point A. In the short run, an open market sale would move the equilibrium to: O A. point E OB. point C O C. point H O D. point B 10
Look at Figure 2. Assume this aggregate demand diagram represents an economy with government, where: a = exogenous consumption b = the marginal propensity to consume t = the tax rate |= investment G = government spending Y = income Figure 2 Aggregate demand AD, AD. 45° Income What is the equation for the aggregate demand schedule ADo? Select one: O ADO = b+ a(1 - t)G +1+ Y O ADO = a + b(1 – 1)Y + 1+ G O ADO = a + b(1 - t) I+ Y+ G O ADO = b+ a(1 – 1)Y + /+ G Next page > ( Previous page PHILIPS
10. Consider a one-period economy which experiences the destruction of some of the nation's capital stock (say through a hurricane is de- stroyed). How should this effect equilibrium, consumption, output and labor supply? Now, let's say the government tries to offset some of the declines in capital on output and hours worked by increasing govern- ment spending. What is the likely outcome of this policy intervention in terms of consumption?
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 100 m 9 AS₁ to AS3 AS₁ to AS₂ AD₂ toAD3 O AD₂ to AD₁ O AD₁ to AD₂ AS AS₁ 200 300 400 500 Real GDP (billions of dollars) AD AS₂ In Figure 8.3, which of the following shifts would result in stagflation (economic stagnation and inflation)?
Use the figure below to answer the following questions. Price level (GDP deflator, 2002-100) LAS 110 100 90 80 70 60 0 SAS AD 320 360 400 440 480 520 Real GDP (billions of 2002 dollars) Figure 26.3.1 Refer to Figure 26.3.1. Econoworld is at its short-run macroeconomic equilibrium. There is a difference between GDP of $ billion. Select one: O A. below full-employment equilibrium; 40 O B. full-employment equilibrium; 0 O C. above full-employment equilibrium; 20 O D. below full-employment equilibrium; 20 O E. above full-employment equilibrium; 40 real GDP and potential
2. An introduction to the AD-AS model The aggregate demand and aggregate supply model is a useful simplification of the macroeconomy used to explain short-run fluctuations in economic activity around its long-run trend. The vertical axis of a diagram of the aggregate demand and aggregate supply curves measures which of the following? An economy’s price level The amount of a particular representative good produced in the economy The price of a particular representative good produced in the economy Which of the following are reasons that the short-run aggregate supply curve slopes upward? Check all that apply. As the price level rises, firms expand their production because they can sell their output for more money. As the price level rises, firms find it more profitable to hire workers at any given wage. As the price level rises, firms decrease their investment because it is more expensive to purchase capital.
19. Which of the following statements concerning Keynesian analysis are true? Select one: a. Keynes's analysis started with the recognition that the total quantity demanded of an economy's output was the sum of three types of spending: consumer expenditure, planned investment spending, and government spending. Ob. Keynes recognized that equilibrium would occur in the economy when planned expenditure equals Actual expenditure O c All of the above are true. d. Keynes's analysis involves explaining why aggregate output is at a certain level by understanding what factors affect each component of aggregate demand and how the sum of these components could add up to an output smaller or greater than the economy is capable of producing
$ Which of the following would cause the Aggregate Supply curve to move from AS to AS2 in the graph below? fs Price Level 150 140 130 120 110 100 90 80 70 60 % 5 0 16 5 O A general increase in energy and labor cost for businesses. O A federal government increase in spending. t 6 10 15 Real GDP ($ billion) -AS-AD-AS2 2 fa lyi & 7 7 J * 20 8 8 num lk ( 25 (1¹) 9
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.