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. 130 125 120 115 110 LRAS AS AD AS

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. 130 125 120 115 110 LRAS AS AD AS

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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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…
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…
Again, the following graph shows the economy in long-run equilibrium at the expected price level of 5 and potential output of $5 trillion before the decrease in foreign spending on domestic goods associated with the recession abroad. Now, on the following exhibit, show the long-run impact of the economic turmoil abroad by shifting both the short-run aggregate demand (AD) curve and the short-run aggregate supply (SRAS) curve to the appropriate positions. Assume that the economic turmoil abroad does not cause a change in the economy's resources, technology, or productivity.) Note: You will not be graded on any changes you make to the graph. VEL PRICE 10 2 0 0 2 LRAS 4 6 REAL GDP (Trillions of dollars) AD 8 SRAS 10 AD In the long run, as a result of the economic turmoil abroad, the price level potential output, and the unemployment rate -- SRAS During the transition from the short run to the long run, price level expectations will ▼curve will shift to the . (?) , and the ▼, the quantity…
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…
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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
8. Which of the following explain why the Aggregate Demand curve is downward sloping? a) An increase in the price level decreases the purchasing power of money denominated wealth, which in turn causes a decline in on consumption spending. b) An increase in the price level decreases the purchasing power of money, which means that more money is needed to purchase goods. This causes buyers of investment and durable goods to require bigger loans to finance their purchases. This, in turn, causes an increase in the demand for loanable funds which leads to a higher interest rate. A higher interest rate will reduce the real purchases of investment and durable goods. c) An increase in the price level makes goods relatively more expensive to foreigners causing them to buy less which means that net exports will decline. d) All of the above. e) None of the above. 9. Which of the following explain why the Aggregate Supply curve is upward sloping?…
7. Determinants of short-run 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.
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 a sudden and severe contraction in the housing market reduces the value of homes and causes consumers to spend less. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the housing market slump. (2) 240 AS 200 AD 140 AS 120 80 AD 40 200 400 800 1000 1200 OUTPUT (BIlons of dollars) In the short run, the decrease in consumption spending associated with the housing market contraction causes the price level to * the price level people expected and the quantity of output to v the natural level of output. The housing market slump 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…
6. Nonprice-level determinants of aggregate supply The following graph shows an increase in short-run aggregate supply (SRAS) in a hypothetical economy. Specifically, short-run aggregate supply shifts to the right from SRAS₁ to SRAS₂, causing the quantity of output supplied at a price level of 125 to rise from $250 billion to $350 billion. Review the graph and then complete the table that follows. PRICE LEVEL 200 175 150 125 100 75 50 25 0 0 50 I SRAS, 100 150 200 250 300 350 REAL GDP (Billions of dollars) Determinant Burdensome Regulations Tax Rates on Firms and Corporations Nominal Wage Rate SRAS₂ 400 The following table lists several determinants of short-run aggregate supply. Complete the table by indicating the change needed in each determinant to increase short-run aggregate supply. Change Needed to Increase SRAS