Causes of the outward right shift in
Explanation of Solution
The equilibrium in the economy is obtained at the intersection of the aggregate
Equilibrium: The equilibrium is the point where the aggregate demand of the economy becomes equal to the aggregate supply of the economy. At this point, there will be no excess demand or
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Chapter 26 Solutions
Economics: Principles & Policy
- Describe the change in aggregate supply that should result from each of the following changes in determinants. Assume that nothing else is changing besides the identified change. (In your answer, indicate whether the change will "Decrease" or "Increase" aggregate supply or have no effect.) (a) A rise in the average price of inputs; (b) An increase in worker productivity; (c) Government antipollution regulations become stricter; (d) A new subsidy program is enacted for new business investment in productive equipment; (e) Energy prices decline.arrow_forwardThe following table lists several determinants of aggregate supply. Fill in the table by indicating the changes in the determinants necessary to increase aggregate supply. Determinant Prices of Nonlabor Inputs Productivity Nominal Wage Rate Change Needed to Increase Short-Run Aggregate Supplyarrow_forwardLet us define "peak oil" as a point in time where the quantity of oil extracted and consumed (let's just assume these are the same) reaches a maximum and then starts to decline. Based on economic theory, (in other words, I'm not asking you to predict anything specific about the oil market in the real world, just a general theory question) should we expect this period of declining production to be accompanied by high and rising prices or by low/falling prices? Give a brief explanation using graphs where appropriate.arrow_forward
- Changes in what four variables will shift the long run aggregate supply curve?arrow_forwardIs the following statement TRUE or FALSE? Please provide reason for the answer. The aggregate supply curve is shifted rightward by an increase in tax rates.arrow_forwardSuppose there is an international recession hits the US economy, what is the long-run equilibrium will look like? What changes in the U.S GDP? Does it affect to the long run aggregate supply and short run aggregate supply?arrow_forward
- Suppose that an economy wants to boost available labor hours in order to increase aggregate supply. What is the best way to accomplish this?arrow_forwardIf the price level decreases, what will happen to the level of real GDP supplied? It will usually decrease. It will usually increase. Nothing. It will decrease at first and then increasearrow_forwardWhich of the following would cause the Aggregate Supply curve to move from AS to AS2 in the graph below? A) A general increase in energy and labor cost for businesses. B) A general decrease in labor cost for businesses. C) An increase in productivity. D) A federal government increase in spending.arrow_forward
- An increase in worker productivity/output per hour will shift the short run aggregate supply curve to the right True / Falsearrow_forwardDraw an aggregate demand and supply diagram for Japan. In the diagram, show how each of the following affects aggregate demand and supply: The U.S. gross domestic product falls. The level of prices in Korea falls. Labor receives a large wage increase. Economists predict higher prices next year.arrow_forwardWhat effect will each shift have on price levels and quantities? Decrease in Aggregate Demand Decrease in Aggregate Supplyarrow_forward
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