How would I do a and b for 5? 2 / 2104%+5. Describe the short-run and long-run effects on real output and the price level for each thefollowing events. Assume the economy begins at short-run and long-run equilibrium. (Include aseparate diagram for each part of the question.)a. Import prices suddenly rise.b. Government institutes a significant reduction in taxes on production.c. People hold off on spending because they expect prices to fall.d. Government increases spending.6. What fiscal policy actions would you recommend in the following instances? (Draw a diagramthat depicts your answer for each part of the question.)The economy begins at potential output, but foreign economies slow dramatically.a.b. The economy has been onerating aboxe potential outnut and inflationany pressures rise

AD-AS model is used to determine equilibrium real output in the goods and services market.a. Increase in price of imports decreases imports, leading to increase in net exports, a component of aggregate demand. As a result AD increases and shifts rightward. At new short run equilibrium, both price level and real output are higher. In the long run, nominal wages will rise as output produced is above full employment. This increases cost of production leading to decrease aggregate supply. Thus AS shifts leftward with a new long run equilibrium where price level rises further and real output falls to initial level.b. Reduction in taxes on production decreases cost of production leading to increase in aggregate supply. As a result AS shifts rightward. At new short run equilibrium, price level is lower and real output is higher. In the long run nominal wages will rise which will decrease aggregate supply back to initial position. New AS shifts back to initial position. At new long run equilibrium, both price level and real output remain at full employment.

Business

Economics

escribe the short-run and long-run effects on real output and the price level for each the ollowing events. Assume the economy begins at short-run and long-run equilibrium. (Include a eparate diagram for each part of the question.) . Import prices suddenly rise. b. Government institutes a significant reduction in taxes on production.

escribe the short-run and long-run effects on real output and the price level for each the ollowing events. Assume the economy begins at short-run and long-run equilibrium. (Include a eparate diagram for each part of the question.) . Import prices suddenly rise. b. Government institutes a significant reduction in taxes on production.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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