12. Increase in the aggregate demand and long-run aggregate supply curves Consider the dynamic aggregate demand and aggregate supply diagram for a hypothetical economy. Between 2021 and 2022, the aggregate demand curve (AD) shifts from AD₁ to AD2, the short-run aggregate supply curve (SRAS) shifts from SRAS, to SRAS2, and the long-run aggregate supply curve (LRAS) shifts from LRAS, to LRAS2. PRICE LEVEL (CPI) LRAS, AD₁ LRAS₂ The inflation rate between 2021 and 2022 is SRAS, 6.6 REAL GDP (Trillions of dollars) 6.8 ▼ SRAS₂ AD₂ The growth rate of full-employment output between 2021 and 2022 is Which of the following best explains the economic developments from 2021 to 2022? O The economy operated at full-employment output in 2021, but the subsequent increase in aggregate demand was not enough to restore the economy to full-employment output, leading to a recessionary gap in 2022. OA strong increase in aggregate demand allowed the economy to grow out of a recessionary gap in 2021 to full employment in 2022. O The economy experienced cost-push inflation.

12. Increase in the aggregate demand and long-run aggregate supply curves Consider the dynamic aggregate demand and aggregate supply diagram for a hypothetical economy. Between 2021 and 2022, the aggregate demand curve (AD) shifts from AD₁ to AD2, the short-run aggregate supply curve (SRAS) shifts from SRAS, to SRAS2, and the long-run aggregate supply curve (LRAS) shifts from LRAS, to LRAS2. PRICE LEVEL (CPI) LRAS, AD₁ LRAS₂ The inflation rate between 2021 and 2022 is SRAS, 6.6 REAL GDP (Trillions of dollars) 6.8 ▼ SRAS₂ AD₂ The growth rate of full-employment output between 2021 and 2022 is Which of the following best explains the economic developments from 2021 to 2022? O The economy operated at full-employment output in 2021, but the subsequent increase in aggregate demand was not enough to restore the economy to full-employment output, leading to a recessionary gap in 2022. OA strong increase in aggregate demand allowed the economy to grow out of a recessionary gap in 2021 to full employment in 2022. O The economy experienced cost-push inflation.

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

See similar textbooks

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?
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?…
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…
Explain the influence of the following events on the quantity of real GDP supplied and aggregate supply in India. When fuel prices rise When the price level in India increases A. short-run aggregate supply decreases; the quantity of real GDP supplied increases O B. long-run aggregate supply decreases; short-run aggregate supply increases OC. long-run aggregate supply increases; the quantity of real GDP supplied increases OD. short-run aggregate supply increases; the quantity of real GDP supplied decreases The graph gives the long-run aggregate supply curve and the short-run aggregate supply curve for India. Suppose Canadian firms move their call handling, IT, and data functions to India. The full-employment price level does not change. If long-run aggregate supply changes, draw the new long-run aggregate supply curve and label it. If short-run aggregate supply changes, draw the new short-run aggregate supply curve and label it. Draw a point at the full-employment price level at…
11. Using aggregate demand, short-run aggregate supply, and long-run aggregate supply curves, explain the proc- ess by which each of the following economic events will move the economy from one long-run macroeconomic equilibrium to another. Illustrate with diagrams. In each case, what are the short-run and long-run effects on the aggregate price level and aggregate output? a. There is a decrease in households' wealth due to a decline in the stock market. b. The government lowers taxes, leaving households with more disposable income, with no correspond- ing reduction in government purchases.
Assume an economy operates in the intermediate range of its aggregate supplycurve. For each of the following changes in conditions, state the direction of theeffect on: aggregate demand, aggregate supply, price level, real GDP.(a) A decrease in government expenditure in infrastructure(b) A severe recession occurs in a country which has been a major importer of thenation’s exports.(c) The federal government increases business taxes with diagram
12. Explain whether each of the following events shifts the short-run aggregate-supply curve, the aggregate-demand curve, both, or neither. For each event that does shift a curve, draw a diagram to illustrate the effect on the economy. A.) Households decide to save a larger share of their income. B.) Florida orange groves suffer a prolonged period of below-freezing temperatures. C.) Increased job opportunities overseas cause many people to leave the country.
7. Increase in the aggregate demand and long-run aggregate supply curves Consider the dynamic aggregate demand and aggregate supply diagram for a hypothetical economy. Between 2041 and 2042, the aggregate demand curve (AD) shifts from AD₁ to AD2, the short-run aggregate supply curve (SRAS) shifts from SRAS₁ to SRAS2, and the long-run aggregate supply curve (LRAS) shifts from LRAS₁ to LRAS₂. PRICE LEVEL (CPI) 100 96 LRAS₁ LRAS₂ AD1 SRAS 10.2 10.6 REAL GDP (Trillions of dollars) SRAS₂ AD2 ?
11. Recession True or False: The aggregate-demand curve slopes downward because it is the horizontal sum of the demand curves for individual goods. True False
2. Suppose an economy is described by the following aggregate demand and short-run aggregate supply curves. The potential level of output is $10 trillion. Aggregate Quantity of Goods and Services Price Level Demanded Supplied 3.0 $11.0 trillion $9.0 trillion 3.4 $10.8 trillion $9.2 trillion 3.8 $10.6 trillion $9.4 trillion 4.2 $10.4 trillion $9.6 trillion 4.6 $10.2 trillion $9.8 trillion 5.0 $10.0 trillion $10.0 trillion 5.4 $9.8 trillion $10.2 trillion 5.8 $9.6 trillion $10.4 trillion 6.2 $9.4 trillion $10.6 trillion 6.6 $9.2 trillion $10.8 trillion 7.0 $9.0 trillion $11.0 trillion Draw the aggregate demand and short-run aggregate supply curves. What is the initial real GDP? What is the initial price level? What kind of gap, if any, exists? After the increase in health-care costs, each level of real GDP requires an increase in the price level of o.8. For example, producing $9.0 trillion worth of goods and services now requires a price level of 3.8. What is the short- run equilibrium…
3. What role do imports play in aggregate demand? Under which conditions will changes in imports expand aggregate demand? Reduce aggregate demand?
QUESTION 1 What causes the aggregate demand curve to shift to the right? An increase in net exports O an increase in labor (L) O A decrease in net exports O An increase in the inputs of production