Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 29, Problem 11SPPA
To determine
To explain:
The possible causes for recession in 2008-2009 and the role of decrease in
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Recessionary Gap
Price Level
LARS
Recessionary Gap
Real GDP
SARS
Aggregate Demand
Wall StreetMojo
What part of the business cycle (expansion, contraction, peak, trough) is the
economy likely in based on the graph above? Describe the likely economic conditions
in this economy.
Worksheet 5: Aggregate Supply and Aggregate Demand
Name:
Complete the questions below. Be sure to show your work. Upload this worksheet to Moodle.
Consider the following Aggregate Supply and Aggregate Demand curves.
1.
P
Draw
10
8
6
4
2
69%
20 40
G93
AS/AD
LRAS
60 80
SRAS
AD
100 120
GDP
3. Does this graph represent a Recessionary Gap, an Inflationary Gap, or an economy that is
operating at its potential output? Explain.
the graph.
Pregate Demand?
In early 2017, policymakers at the Federal Reserve forecast that real GDP during 2017 would increase faster than potential GDP and that the inflation rate for the year would be about 1.9 percent.
Source: Federal Open Market Committee, "Advance Release of Table 1 of the Summary of Economic Projections to be Released with the FOMC Minutes," March15, 2017.
Fill in the missing values in the table with estimates that are consistent with these forecasts. Assume that the growth rate for real GDP between 2016 and 2017 is 0.32 percentage points higher than the percentage change in potential output between those years (rounded to two decimal places).
2016
2017
Real GDP
$16.7 trillion
$nothing
trillion
Potential GDP
$16.9 trillion
$17.1 trillion
GDP Deflator
111.5
nothing
(Enter your responses rounded to one decimal place.)
Chapter 29 Solutions
Foundations of Economics (8th Edition)
Ch. 29 - Prob. 1SPPACh. 29 - Prob. 2SPPACh. 29 - Prob. 3SPPACh. 29 - Prob. 4SPPACh. 29 - Prob. 5SPPACh. 29 - Prob. 6SPPACh. 29 - Prob. 7SPPACh. 29 - Prob. 8SPPACh. 29 - Prob. 9SPPACh. 29 - Prob. 10SPPA
Ch. 29 - Prob. 11SPPACh. 29 - Prob. 1IAPACh. 29 - Prob. 2IAPACh. 29 - Prob. 3IAPACh. 29 - Prob. 4IAPACh. 29 - Prob. 5IAPACh. 29 - Prob. 6IAPACh. 29 - Prob. 7IAPACh. 29 - Prob. 8IAPACh. 29 - Prob. 9IAPACh. 29 - Prob. 10IAPACh. 29 - Prob. 1MCQCh. 29 - Prob. 2MCQCh. 29 - Prob. 3MCQCh. 29 - Prob. 4MCQCh. 29 - Prob. 5MCQCh. 29 - Prob. 6MCQCh. 29 - Prob. 7MCQ
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- How is recession illustrated in an AD/AS model?arrow_forwardIf the economy is operating In the Keynesian zone of the SRAS curve and aggregate demand falls, what is likely to happen to real GDP?arrow_forwardA number of macroeconomic variables decline during recessions. One of these variables is the GDP. 1. What other variables, besides real GDP, tend to decline during recessions? Given the definition of real GDP and its components, explain the declines in these economic variables which are to be expected. 2. Empirical studies indicate that the long-run trend in real GDP of the USA has an upward trend. How is this possible given business cycles and macroeconomic fluctuations? What factors explain the upward trend in spite of the cycles?arrow_forward
- 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 spendingarrow_forwardAn economic recession means that _______. a. GDP is critically high b. Output and employment is down c. Employment is increasing d. Output is increasingarrow_forward8. Applying the AD-AS model to a growing economy Consider a fictional economy of Shana. The following graphs show aggregate supply and aggregate demand curves for two years-1992 and 2005-in which the economy of Shana experienced growth. Refer to the following graphs to answer the questions that follow. PRICE LEVEL 1992 I REAL GDP AS AD₁ PRICE LEVEL 2005 REAL GDP I I 1 AS. AD₁arrow_forward
- (Please attach a graph showing your work for each question) Suppose that the oil price sharply increased for a while, which increased production costs, causing an adverse supply shock. Use the AD-AS model to show the effects on output and the price level in both the short- run and long-run. Show the adjustment process of the economy from the short-run to the long-run. What is the effect on unemployment in short-run and long-run? Can policymakers do something to accommodate this shock? Would the outcome be different in this case? Suppose that the coronavirus pandemic (COVID 19) in 2020 has resulted in a leftward shift of the aggregate demand curve (it has also shifted the short-run aggregate supply to the left, butlet’s ignore this effect here for simplification). Use the aggregate-demand/aggregate-supply model to show the effects on output and the price level/inflation in both the short run and long run (assume that the short-run aggregate supply curve is upward…arrow_forward“John Maynard Keynes introduced the AD-AS macroeconomic model (aggregate demand- aggregate supply) to determine the equilibrium level of real output and the level of prices in the economy” 1. Draw a diagram with aggregate demand, short-run aggregate supply, and long-run aggregate supply. 2. Discuss the reasons why the aggregate demand curve is downward sloping, while the short-run aggregate-supply curve is upward sloping?arrow_forwardcould you please explain with more detail about the following, 2address the problem of an economic recession caused by high inflation, governments and central banks2arrow_forward
- What makes the 2007-2009 recession special? 1. because of the length of the recession 2. because of period required for the economy to recover from the recession and whyarrow_forward1- ) The National Bureau of Economic Research maintains a Web page devoted to business cycle expansions and contractions at http://www.nber.org/cycles.htmlLinks to an external site. . Please take a look at this page to see if you can determine how the business cycle has been changing in recent decades. Has the overall length of cycles been changing? Have recessions been getting longer or shorter? 2- ) Please review the Summary of Commentary on Current Economic Conditions by Federal Reserve District (Beige Book), available through the Federal Reserve System at http://www.federalreserve.gov/monetarypolicy/beigebook/beigebook201409.htmLinks to an external site. Summarize the national economic conditions for the most recent period covered in the report. Overall, is the economy healthy? If not, what problems is it experiencing? 3- ) (Economic Fluctuations) Describe the various components of fluctuations in economy activity over time. Because economic activity fluctuates, how is…arrow_forward5:09 C A & 1 & P M - 32% Page 8 of 5 QUESTION B2 The figure below depicts aggregate demand and aggregate supply in the nation of Pacifica in 2019. Long-Run AS Short-Run AS AD Real GDP At the beginning of 2020, a wave of business optimism led producers to sharply increase their planned investment expenditure. a. What effect, if any, will this increased investment expenditure have in the short-run on the Aggregate Demand curve? What effect, if any, will it have on the Short-Run Aggregate Supply curve? b. After the increased investment expenditure, will short-run equilibrium real GDP be above or below potential GDP? How do you know? The president of Pacifica is concerned about the effect of this new investment expenditure on the economy, and she wishes to use monetary policy to move equilibrium GDP back toward potential GDP. (For the remainder of the question, assume that the Pacifica Central Bank is Pacifica's version of the United States Federal Reserve, that Pacifica's banking and…arrow_forward
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