Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 33, Problem 7SPPA
To determine
The price level and real
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What effects would each of the following have on aggregate demand or aggregate supply? In each case use a diagram to show the expected effects on the equilibrium price level and the level of real output. Assume all other things remain constant.
a. The expectation of rapid inflation
b. A 10 percent reduction in personal income tax rates
c. A sizable increase in labor productivity (with no change in nominal wages)
d. A 12 percent increase in nominal wages (with no change in productivity)
e. Depreciation in the international value of the dollar.
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
Homework: Chapter 09
PRICE LEVEL
140
135
130
125
120
115
110
105
100
0
Changes in a Self-Regulating Economy
1
AD2
SRAS
AD₁
LRAS
6
2
3
4
5
REAL GDP (Trillions of dollars)
8
Suppose there is a sudden decrease in government purchases that causes a shift in aggregate demand from AD; to AD₂. As a classical economist
from Langoria, you explain that the shift in aggregate demand creates
. You also explain that
will be affected in the short run.
You note that such a gap leads to an unemployment rate that is
to ▼ As wages change, the
explain that in the long run,
the natural unemployment rate. This means that wages are certain
until Real GDP equals Natural Real GDP. Finally, you
curve shifts to the
will be affected.
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A-Z
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Chapter 33 Solutions
Foundations of Economics (8th Edition)
Ch. 33 - Prob. 1SPPACh. 33 - Prob. 2SPPACh. 33 - Prob. 3SPPACh. 33 - Prob. 4SPPACh. 33 - Prob. 5SPPACh. 33 - Prob. 6SPPACh. 33 - Prob. 7SPPACh. 33 - Prob. 8SPPACh. 33 - Prob. 9SPPACh. 33 - Prob. 10SPPA
Ch. 33 - Prob. 11SPPACh. 33 - Prob. 1IAPACh. 33 - Prob. 2IAPACh. 33 - Prob. 3IAPACh. 33 - Prob. 4IAPACh. 33 - Prob. 5IAPACh. 33 - Prob. 6IAPACh. 33 - Prob. 7IAPACh. 33 - Prob. 8IAPACh. 33 - Prob. 9IAPACh. 33 - Prob. 10IAPACh. 33 - Prob. 11IAPACh. 33 - Prob. 12IAPACh. 33 - Prob. 1MCQCh. 33 - Prob. 2MCQCh. 33 - Prob. 3MCQCh. 33 - Prob. 4MCQCh. 33 - Prob. 5MCQCh. 33 - Prob. 6MCQCh. 33 - Prob. 7MCQ
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- Which one of the following variables is not held constant along a given aggregate demand curve? Select one: A. fiscal policy B. monetary policy C. expectations about inflation D. the price level O E. the exchange ratearrow_forwardParagraph Styles 3. QUESTION 1 For each of the following statements, show graphically and explain the expected effets of the equilibrium price and output for aggregate demand and aggregate supply, other things remaining constant. a. An appreciation in currency; b. An increase in price of non-labor inputs. c. A decrease in real wage rates. Page 2 of 3arrow_forwardWhich of the following leads to a rightward shift in the aggregate demand? a. General price level fall b. Rise in government spending c. General price level rise d. Fall in government spendingarrow_forward
- 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?arrow_forward10. What does the AD curve represent economically? A. It represents the difference between actual real GDP and nominal GDP B. It describes how the Fed chooses short-run output based on inflation C. It describes how the velocity of money can fluctuate in the short run D. All of the abovearrow_forwardQUESTION 48 Figure 3. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." AS 2 B AS₁ KA A AD Y₂ Y₁ Y Refer to Figure 3. An increase in the price of oil could explain P₂ P₁ Inf Rate PC 1 PC2 a. neither the shift of the aggregate-supply curve from AS₁ to AS2 nor the shift of the Phillips curve from PC1 to PC2. b. both the shift of the aggregate-supply curve from AS₁ to AS2 and the shift of the Phillips curve from PC₁ to PC2. c. the shift of the aggregate-supply curve from AS1 to AS2, but it could not explain the shift of the Phillips curve from PC1 to PC₂. Od. the shift of the Phillips curve from PC₁ to PC2, but it could not explain the shift of the aggregate-supply curve from AS₁ to AS2.arrow_forward
- The economy starts out on the curves AD, and SAS- Price level (GDP deflator, 2009 = 100) Suppose that people expect deflation (a falling price level), but aggregate demand remains at AD 240 LAS Show what happens to the short-run and long-run aggregate supply curve. Label the new curve. 200- SASO Draw a point at the new macroeconomic equilibrium. 160 When it becomes obvious to everyone that the deflation is not going to occur, 120 120 O A. long-run aggregate supply increases O B. the money wage rate falls further OC. aggregate demand decreases OD. the money wage rate rises and the short-run aggregate supply curve returns to its original position 80 AD 40- 10 10 11 12 13 14 Real GDP (trillions of 2009 dollars) 15 >>> Draw only the objects specified in the question.arrow_forwardVII. Assume that the economy starts at the natural level of output. Now suppose there is a decline in business confidence, so that investment demand falls for any interest rate. a. In an AD-AS diagram, show what happens to output and the price level in the short run and the medium run. b. What happens to the unemployment rate in the short run and in the medium run?arrow_forward1) What effects might each of the following have on aggregate demand/aggregate supply? In each case use a diagram to illustrate the effect, explain why shifts occurred, and state the impact of each event on the price levels, the unemployment rate, and real GDP. a. Congress passes into law a $1.5 billion cut in personal income taxes. b. Significant technological advances in the renewable energy sector decrease the price of all electricity by 50% c. Increases in consumer confidence lead to a positive demand shock.arrow_forward
- Suppose an economy is in long-run equilibrium.a.Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium(call it point A).be sure to include both short-run and long-run aggregate supply.b.The central bank raise the money supply by 5 percent.Use your diagram to show what happens to output and the price level as the economy moves from the initial to the new short-run equilibrium.(call it point B)c.Now slow the new long-run equilibrium(call it point C).what causes the economy to move from point B to point C?d.According to the sticky-wage theory of aggregate supply,how do nominal wages at point A compare to nominal wages at point B?How do nominal wages at point A compare to nominal wages at point C?e.According to the sticky wage theory of aggregate supply,how do real wages at point A compare to the real wages at point B?How do real wages at pointA compare to the real wages at point C?f.Judging by the impact of the money supply on nominal and real…arrow_forwardWhich of the following can make the Aggregate Supply shift? Select one: a. a decrease in the money supply b. a discovery of oil at the bottom of the ocean C. a devaulation of the currrency d. an increase in the money supplyarrow_forwardIn the medium run, if government purchases are increased and nominal money supply is decreased, we can expect that a. the interest rate will increase while aggregate demand and prices may increase, decrease, or remain the same b. aggregate demand and prices will increase but interest rates will not change c. aggregate demand and interest rates will decrease but prices will increase d. aggregate demand, prices, and the interest rate will all decrease e. the AD-curve will shift to the right and the AS-curve will shift to the leftarrow_forward
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