EXPLORING ECONOMICS
8th Edition
ISBN: 2818000015614
Author: Sexton
Publisher: SAGE
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Question
Chapter 22, Problem 4P
To determine
(a)
To explain:
The effects of increase in aggregate demand in the short-run and the impact on the price level, real output, employment and
To determine
(b)
To explain:
The effects of increase in aggregate demand in the long-run and the impact on the price level, real output, employment and unemployment.
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Suppose the full-employment level of real output ( Q) for a hypothetical economy is $250 and the price level (P ) initially is 100. Use the short-run aggregate supply schedules below to answer the questions that follow: a. What will be the level of real output in the short run if the price level unexpectedly rises from 100 to 125 because of an increase in aggregate demand? What if the price level unexpectedly falls from 100 to 75 because of a decrease in aggregate demand? Explain each situation, using figures from the table.b. What will be the level of real output in the long run when the price level rises from 100 to 125? When it falls from 100 to 75? Explain each situation.c. Show the circumstances described in parts a and b on graph paper, and derive the long-run aggregate supply curve.
Which of the following are assumed to remain unchanged along a given short-run aggregate supply curve? Check all that apply.
A. The position of the aggregate demand curve
B. The price level
C. Real GDP
D. Input prices
Using aggregate demand and aggregate supply, graph the effects on the price level and GDP of each of the following. Draw a large graph and label all axes, initial and final equilibrium points, direction of shift if any, all curves and lines, equilibrium values on the x- and y-axes. State the conclusion in words.
a. A cut in income taxes
b. An increase in military spending
c. A drop in export demand by foreign purchasers
d. An increase in imports
e. A decline in business investment spending
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Similar questions
- Please answer fast please helparrow_forwardWhich of the following is consistent with the theory of aggregate supply? a. An increase in the expected price level shifts the short-run aggregate-supply curve to the left, and an increase in the actual price level shifts the short-run aggregate supply to the left. b. An increase in the expected price level shifts the short-run aggregate-supply curve to the right, and an increase in the actual price level shifts the short-run aggregate supply to the right. c. An increase in the expected price level shifts the short-run aggregate-supply curve to the left, and an increase in the actual price level does not shift the short-run aggregate supply. d. An increase in the expected price level shifts the short-run aggregate-supply curve to the right, and an increase in the actual price level does not shift the short-run aggregate supply. Note:- Please avoid using ChatGPT and refrain from providing handwritten solutions; otherwise, I will definitely give a downvote. Also, be mindful of…arrow_forwardThe following events shift either aggregate demand, aggregate supply, both or neither. Using a diagram, illustrate the effect of the events on the economy. In particular, explain the effect of each event on price level, real GDP and equilibrium in the economy. A) A recent business survey reported that business confidence has declined. B) Government cuts the rate of personal income tax after a pandemic caused an economic slowdown. C) A recent flooding in a small rural region destroyed the potato crop. D) A booming economy in a neighbouring country has drawn many working age people (and their families) to emigrate there in search of jobs and better life.arrow_forward
- The following events shift either aggregate demand, aggregate supply, both or neither. Using a diagram, illustrate the effect of the events on the economy. In particular, explain the effect of each event on price level, real GDP and equilibrium in the economy. A) A recent business survey reported that business confidence has declined. B) Government cuts the rate of personal income tax after a pandemic caused an economic slowdown. C) A recent flooding in a small rural region destroyed the potato crop.arrow_forwardThe economy is in a full-employment equilibrium in year 1. In year 2, the price level decreased and the level of output increased. The most likely cause of the new equilibrium is Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. An increase in aggregate supply b A decrease in aggregate supply An increase in aggregate demand d A decrease in aggregate demandarrow_forwardPlease give a detailed answer to the below question.Options For Fill In Blanks:higher or lowerincrease or decreaseimproves or declinesarrow_forward
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- Other things equal, what effects would each of the following have on aggregate demand or aggregate supply? In each case use a diagram to show the expectedeffects on the equilibrium price level and the level ofreal output.a. A reduction in the economy’s real interest rate.b. A major increase in federal spending for healthcare (with no increase in taxes).c. The complete disintegration of OPEC, causing oilprices to fall by one-half. d. A 10 percent reduction in personal income taxrates (with no change in government spending).e. A sizable increase in labor productivity (with nochange in nominal wages).f. A 12 percent increase in nominal wages (with nochange in productivity).g. A sizable depreciation in the international value ofthe dollar.arrow_forwardThe economy is in a full-employment equilibrium in year 1. In year 2, the price level decreased and the level of output increased. The most likely cause of the new equilibrium is Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a An increase in aggregate supply b A decrease in aggregate supply с An increase in aggregate demand A decrease in aggregate demandarrow_forward19. Problems and Applications Q10 Suppose an increase in the money supply leads to a fall in interest rates, thereby encouraging firms to invest more. Show the short-run effect of this change in investment spending on the aggregate-demand curve. (?) Price Level LRAS Aggregate Supply Aggregate Demand Quantity of Output Aggregate Demand Aggregate Supply LRASarrow_forward
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