Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Chapter 10, Problem 17E
To determine
In the chapter titled "
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The following graph shows a decrease in aggregate demand (AD) in a hypothetical country. Specifically, aggregate demand shifts to the left from AD1AD1 to AD2AD2, causing the quantity of output demanded to fall at all price levels. For example, at a price level of 140, output is now $200 billion, where previously it was $300 billion.
The following table lists several determinants of aggregate demand.
Complete the table by indicating the change in each determinant necessary to decrease aggregate demand.
Change needed to decrease AD
Wealth
(increase/ decrease)
Taxes
(increase/ decrease)
Expected rate of return on investment
(increase/ decrease)
Incomes in other countries
(increase/ decrease)
The following graph shows the short-run and long-run aggregate supply curves (SRAS and LRAS) for an economy.
Suppose there is a technological improvement that allows firms to reduce their costs of production permanently.
Drag one or both of the curves on the graph to illustrate the long-term effects of this change. If you don't believe there will be any long-term effects,
leave the curves where they are.
240
LRAS
SRAS
200
SRAS
160
LRAS
120
80
40
6
12
18
24
REAL GDP (Trillions of dollars)
Assuming aggregate demand is not affected by the technological improvement, the long-run effect of this
v supply shock
is
v in aggregate output and
v in the price level.
PRICE LEVEL
The following graph shows an aggregate demand curve (AD) illustrating the inverse relationship between the price level and the quantity of Real GDP
in the United States.
During World War II, the United States increased military spending.
Show the effect of the following scenario on the aggregate demand curve by dragging the curve or moving the point to the appropriate position.
Note: Tool tip: To move the curve, click and drag any part of the curve. The curve will snap into position, so if you try to move it and it snaps back to
its original position, just try again and drag it a little farther.
PRICE LEVEL
Aggregate Demand
I
I
"
I
1
REAL GDP
AD
AD
(?)
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- Suppose a boom in stock market prices helps make people feel wealthier. Using the model of aggregate demand and aggregate supply, identify and illustrate the curves that are affected, and which direction these curves would shift. In your own words, explain what happens to price level and real GDP and equilibrium? (Hint: Graph your own AD/AS model to answer part of the question)arrow_forwardThe following graph shows an aggregate demand (AD) curve and a short-run aggregate supply (SRAS) curve for an economy. Suppose the economy is initially in a short-run equilibrium at PE, and Real GDP is 25trillion. At some point, the economy experiences a decrease in wage rates. Adjust the following graph to show the effect of a decrease in wage rates on the economy. Price Level 0 5 10 I | 1 15 20 25 30 35 Real GDP (Trillions Dollars) SRAS AD 40 45 50 AD SRASarrow_forward120- 115- 110- 105- 100- 95- 90- 85+ Price level 1.1 S LAS D B SAS₁ ch SASO AD ADO 1.2 1.3 1.4 1.5 1.6 Real GDP (trillions of 2007 dollars) 1.7arrow_forward
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