17 M Inl b Ar |E Th | G ho de M ht C Or MC Graw Cc MM Th G wh + 6f5a2822dfd7782449c8e hapter 11 AD/AS Model Turned in automatically Average Price Level 28000,45) SRAS AD Output (Real GDP) O Chapter 11 - AD/AS... Unit 4 Assignment (. DELL

We can analyze the macroeconomic effects of Hurricane Katrina using the aggregate supply (AS) and aggregate demand (AD) diagram. The horizontal axis measures real GDP, a measure of the nation’s output that removes the effects of inflation. The vertical axis measures the price level (the average level of output prices).   Consider Katrina’s effect of “cost shocks” – unexpected changes in the prices of important inputs (assume LRAS is unchanged). For example, Katrina unexpectedly choked off oil, natural gas, and refined gasoline supplies from the Gulf region, placing upward pressure on energy costs. The hurricane also shut down factories and businesses, reducing the nation’s productive capacity. Therefore, the effect of the higher energy prices and reduced productive capacity is to shift the __________ curve(s).   Consider how the government’s fiscal policy response affects the economy. Recall that both individual consumers’ purchases and government purchases are included in aggregate…

The following graph shows the aggregate demand (AD) curve in a hypothetical economy. At point A, the price level is 140, and the quantity of output demanded is $300 billion. Moving down along the aggregate demand curve from point A to point B, the price level falls to 120, and the quantity of output demanded rises to $500 billion. 170 100 180 140 130 120 110 AD 100 00 100 200 300 400 B00 700 OUTPUT (Billians of dollars) As the price level falls, the cost of borrowing money will , causing the quantity of output demanded to Additionally, as the price level falls, the impact on the domestic interest rate will cause the real value of the dollar to in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore and the number of foreign products purchased by domestic consumers and firms (imports) will Net exports will therefore causing the quantity of domestic output demanded to

Explain, in detail, how the adjustment to macroeconomic equilibrium occurs when spending is less than production. Be sure to discuss how inventories play a crucial role in the adjustment process. State what happens to GDP and employment during the adjustment process.