9. Economic fluctuations IIThe following graph shows the short-run aggregate supply curve (AS), the aggregate demand curve (AD), and the long-run aggregate supply curve(LRAS) for a hypothetical economy. Initially, the expected price level is equal to the actual price level, and the economy is in long-run equilibrium atits natural level of output, $100 billion.Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs ofproducing goods and services in this economy.Use the graph to help you answer the questions about the short-run and long-run effects of the increase in production costs that follow. (Note: Youwill not be graded on any adjustments made to the graph.)Hint: For simplicity, ignore any possible impact of the severe weather on the natural level of output.PRICE LEVEL1201151101051009590LRASASADAD2 4 2 4LRAS PRICE LEVEL1201151101051009590858080 85LRASASAD90 95 100 105 110 115OUTPUT (Billions of dollars)1206 2 4 2 4 3The short-run economic outcome resulting from the increase in production costs is known asNow suppose that the government immediately pursues an accommodative policy by increasing government purchases in response to the short-runeconomic impact of the severe weather.In the long-run, when the government pursues accommodative policy, the output in the economy will be $will bebillion billion and the price level

This can be defined as a concept that shows the level of output in a market or economy where the…

The short-run economic outcome resulting from the increase in production costs is known as Now suppose that the government immediately pursues an accommodative policy by increasing government purchases in response to the short-run economic impact of the severe weather. In the long-run, when the government pursues accommodative policy, the output in the economy will be $ will be billion billion and the price level

The short-run economic outcome resulting from the increase in production costs is known as Now suppose that the government immediately pursues an accommodative policy by increasing government purchases in response to the short-run economic impact of the severe weather. In the long-run, when the government pursues accommodative policy, the output in the economy will be $ will be billion billion and the price level

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter15: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 8PA

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Similar questions

Use Table 26.3 to answer the following questions. Sketch an aggregate supply and aggregate demand diagram. What is the equilibrium output and price level? If aggregate demand shifts right, what is equilibrium output? If aggregate demand shifts left, what is equilibrium output? In this scenario, would you suggest using aggregate demand to alter the level of output or to control any inflationary increases in the price level?
If households decide to save a larger portion of their income, what effect would this have on the output, employment, and price level in the short run? What about the long run?
On a microeconomic demand curve, a decrease in price causes an increase in quantity demanded because the product in question is now relatively less expensive than substitute products. Explain why aggregate demand does not increase for the same reason in response to a decrease in the aggregate price level. In other words, what causes total spending to increase if it is not because goods are now cheaper?
R 9. Economic fluctuations II The following graph shows the aggregate demand curve (AD), the short-run aggregate supply curve (AS), and the long-run aggregate supply cur LRAS) for a hypothetical economy. Initially, the expected price level equals the actual price level, and the economy experiences long-run equilibriu at a natural level of output of $110 billion. Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs of producing goods and services. Use the graph to help you answer the questions about the short-run and long-run effects of the increase in production costs that follow. (Note: You will not be graded on any adjustments made to the graph). Hint: For simplicity, ignore any possible impact of the severe weather on the natural level of output. PRICE LEVEL 130 125 120 115 110 105 100 95 90 90 LRAS AS, AD 95 -100 105 110 115 120 125 130 OUTPUT (Billions of dollars) AD AS LRAS The short-run…
7. Determinants of aggregate supply The following graph shows a decrease in short-run aggregate supply (AS) in a hypothetical economy where the currency is the dollar. Specifically, the short-run aggregate supply curve shifts to the left from AS1AS1 to AS2AS2, causing the quantity of output supplied at a price level of 100 to fall from $200 billion to $150 billion. The following table lists several determinants of short-run aggregate supply. Complete the table by selecting the changes in each scenario necessary to decrease short-run aggregate supply. Change Necessary to Decrease AS Technology (declines/improves) Human capital. (declines/improves) Inflation expectations. (declines/improves)
8. Economic fluctuations I The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $600 billion. Suppose the government increases spending on building and repairing highways, bridges, and ports. Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the increase in government spending. PRICE LEVEL 240 200 160 120 80 40 0 0 200 400 600 800 OUTPUT (Billions of dollars) AS I AD 1000 1200 þ 2 6 2 AS (?) In the short run, the increase in government spending on infrastructure causes the price level to the quantity of output to the price level people expected and ▼ the natural level of output. The increase in government spending will cause the unemployment rate to the natural rate of unemployment in the short run.
8. Economic fluctuations I The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $600 billion. Suppose the government Increases spending on building and repairing highways, bridges, and ports. Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the Increase in government spending. 240 200 160 120 PRICE LEVEL 80 40 0 240 200 0 160 120 200 40 In the short run, the increase in government spending on infrastructure causes the price level to the quantity of output to 0 400 600 800 OUTPUT (Billions of dollars) Again, the following graph shows a hypothetical economy experiencing long-run equilibrium at the expected price level of 120 and natural output level of $600 billion, prior to the increase in government spending on infrastructure. Along the transition from the short run to the long run, price-level expectations will curve…
9. Economic fluctuations II The following graph shows the aggregate demand curve (AD), the short-run aggregate supply curve (AS), and the long-run aggregate supply curve ( LRAS) for a hypothetical economy. Initially, the expected price level equals the actual price level, and the economy experiences long-run equilibrium at a natural level of output of $110 billion. Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs of producing goods and services. Use the graph to help you answer the questions about the short-run and long-run effects of the increase in production costs that follow. (Note: You will not be graded on any adjustments made to the graph.) Hint: For simplicity, ignore any possible impact of the severe weather on the natural level of output. LRAS AS 120 115 110 * 105 100 AD 100 105 110 115 120 OUTPUT (Billions of dollars) PRICE LEVEL 130 125 95 90 90 95 125 130 AD D AS LRAS (?) The…
Note: Line segments will automatically connect the points. PRICE LEVEL (Billions of dollars) 200 160 120 0 80 160 240 REAL GDP (Index numbers) The equilibrium price level is 320 400 Initial AD The change in government spending the multiplier effect. SRAS New AD ✓, and the equilibrium level of real output is Suppose that the government spending increases by $16 billion and the expenditure multiplier in this economy is 5. On the previous graph, use the purple points (diamond symbols) to illustrate the effect of the increase in government spending on the aggregate demand (New AD) curve. the equilibrium level of real output by . The price level increase
8. Economic fluctuations I The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $600 billion. Suppose the government increases spending on building and repairing highways, bridges, and ports. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the increase in government spending. 240 AS 200 AD 160 AS 120 80 AD 40 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the short run, the increase in government spending on infrastructure causes the price level to the price level people expected and the quantity of output to the natural level of output. The increase in government spending will cause the unemployment rate to the natural rate of unemployment in the short run. Again, the following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $600 billion, before the increase in…
9. Economic fluctuations II The following graph shows the aggregate demand curve (AD), the short-run aggregate supply curve (AS), and the long-run aggregate supply curve (LRAS) for a hypothetical economy. Initially, the expected price level equals the actual price level, and the economy experiences long-run equilibrium at a natural level of output of $80 billion. Suppose war in the world's main oil-producing region sharply reduces the world oil supply, causing oil prices to rise and increasing the costs of producing goods and services. Use the graph to help you answer the questions about the short-run and long-run effects of the increase in production costs that follow. (Note: You will not be graded on any adjustments made to the graph.) Hint: For simplicity, ignore any possible impact of the higher oil prices on the natural level of output.
6. Determinants of short-run aggregate supply The following graph shows an increase in short-run aggregate supply (AS) in a hypothetical economy where the currency is the dollar. Specifically, the short-run aggregate supply curve shifts to the right from AS1 to AS2, causing the quantity of output supplied at a price level of 100 to rise from $200 billion to $250 billion. 175 AS₁ 150 AS₂ 125 100 4 75 50 25 50 100 150 200 PRICE LEVEL 200 0 0 250 QUANTITY OF OUTPUT 300 350 400 ? The following table lists several determinants of short-run aggregate supply. Inflation expectations Tax rates Technology Fill in the table by indicating the changes in the determinants necessary to increase short-run aggregate supply. Change Needed to Increase AS