5. The slope and position of the long-run aggregate supply curve Suppose the Fed doubles the growth rate of the quantity of money in the economy. In the long run, the increase in money growth will change which of the following? Check all that apply. The level of technological knowledge n The quantity of physical capital n The inflation rate n The size of the labor force Suppose the economy produces real GDP of $50 billion when unemployment is at its natural rate. Use the purple points (diamond symbol) to plot the economy's long-run aggregate supply (LRAS) curve on the graph. 132 128 LRAS 124 120 116 112 108 104 100 10 20 30 40 50 60 70 80 OUTPUT (Billions of dollars) Suppose the government passes a law that significantly increases the minimum wage. The policy will cause the natural rate of unemployment to which will: Not affect the long-run aggregate supply curve o Shift the long-run aggregate supply curve to the left o Shift the long-run aggregate supply curve to the right In the following table, determine how each event affects the position of the long-run aggregate supply (LRAS) curve. Direction of LRAS Curve Shift Many workers leave to pursue more lucrative careers in foreign economies. A scientific breakthrough significantly increases food production per acre of farmland. A government-sponsored training program increases the skill level of the workforce. PRICE LEVEL శ్రీ శ్లీ్

4. Suppose that the President and Congress get legislation passed that encourages investment in research and development of new technologies. Assuming this policy results in a positive and permanent technological change, what does aggregate demand and supply analysis predict in terms of inflation and output? Only consider the self- correcting mechanism of the economy.

4.  Suppose that people expect inflation to equal 3 percent, but in fact prices rise by 5 percent. Indicate whether this unexpected higher rate of inflation would help or hurt each of the following groups. a homeowner with a fixed-rate mortgage. a union worker with a fixed labor contract a company that has invested some of its endowment in a government bonds which pay a fixed rate of return. 5. Indicate how each of the following events would affect the aggregate demand AD curve:     a short-run decrease in the price level an increase in consumer confidence on the price level and real GDP an increase in government purchases

1. In the following table, determine how each event likely effects potential output (a.k.a., long-run aggregate supply).    Direction of Potential Output Shift Event Left Right No Shift The government allows more immigration of working-age adults.       For environmental and safety reasons, the government requires that the country’s nuclear power plants be permanently shut down.       An investment tax credit increases the rate at which firms acquire machinery and equipment.         2. In the following table, determine how each event affects the position of the aggregate demand curve.    Direction of AD Curve Shift Event Left Right No Shift A decrease in consumer confidence (suggests people believe a contraction/recession coming)       A decrease in individual income tax rates       An increase in the value/price of housing         3. What effect would an increase in aggregate demand…

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9. How will (a) an unexpected 3 percent fall in the price level in the goods and services market differ from (b) 1 percent inflation when 4 percent inflation had been expected? What impact would (a) and (b) have on the real price of resources, profit margins, output, and employment? Explain.

Now adjust the graph to show the new long-run equilibrium. What causes the economy to move from its short-run equilibrium to its long-run equilibrium? Ⓒ Nominal wages, prices, and perceptions adjust downward to this new price level. The government increases spending to increase aggregate demand. O Nominal wages, prices, and perceptions adjust upward to this new price level. The government increases taxes to curb aggregate demand. Which of the following is true according to the sticky-wage theory of aggregate supply as a result of the decrease in the money supply? Check all that apply. Nominal wages at the initial equilibrium are greater than nominal wages at the new short-run equilibrium. Nominal wages at the initial equilibrium are greater than nominal wages at the new long-run equilibrium. Real wages at the initial equilibrium are less than real wages at the new short-run equilibrium. Real wages at the initial equilibrium are less than real wages at the new long-run equilibrium.…

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