Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Chapter 33, Problem 1TY
To determine
The effect of a change in the aggregate
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Suppose that government decides to support the firms for their investments in research and the development.Assuming this support increases productivity in the economy, use aggregate demand and supply analysis to predict the short-run and long-run effects on inflation and output. Show these effects on a graph and explain the results in detail.
Suppose that the inflation rate remains constant while output increases and the unemployment rate decreases. Using an aggregate demand and supply graph, show how this scenario is possible.
I can't find anything to back up that a decrease in aggregate demand causes cost push inflation. My textbook does mention the increase in aggregate supply. I thought that a decrease in price generally meant deflation? And doesn't the decrease (left shift) in aggregate demand result in lower prices?
Chapter 33 Solutions
Economics: Principles & Policy
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- Use aggregate demand and aggregate supply to explain the inverse relationship between inflation and unemplymentarrow_forwardThe Covid-19 pandemic shifted the aggregate supply and aggregate demand curves to the left. Did that increase or decrease real GDP, employment, and inflation rate? Explain your answer.arrow_forwardSuppose that the short-run aggregate supply curve is: π= 2 + 1.5 (Y-10), where it is inflation and Y is output; and the aggregate demand curve is: Y= 11 -0.5. Find the equilibrium output and the equilibrium inflation rate.arrow_forward
- According to the misperceptions theory of aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what they produce had increased, so they would increase production. increased, so they would decrease production. decreased, so they would increase production. decreased, so they would decrease production.arrow_forwardHow do changes in aggregate demand and aggregate supply might cause inflation in the economy?arrow_forwardSuppose that government decides to support the firms for their investments in research and the development.Assuming this support increases roductivity in the economy, use aggregate demand and supply analysis to predict the short-run and long-run effects on inflation and output. Show these effects on a graph and explain the results in detail.arrow_forward
- Give two specific reasons why inflation in Canada is higher than normal.arrow_forwardIs the following statement TRUE or FALSE? Please provide reason for the answer. In the short run, the central bank's actions to fight inflation shift the aggregate demand curve leftward.arrow_forwardSuppose that your economy is in long run equilibrium. The aggregate demand and aggregate supply in the market is represented by the following functions: AD:= 360 – 4Y AS: P = 20 + 4Y Something occurs in the economy and the aggregate demand changes to: AD: P = 400 – 4Y Calculate the inflation rate that occurs with the change in aggregate demand.arrow_forward
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