ECONOMICS W/CONNECT+20 >C<
20th Edition
ISBN: 9781259714993
Author: McConnell
Publisher: MCG CUSTOM
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Chapter 38, Problem 2RQ
To determine
The impact of an increase in output on the price level in the long run.
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Discuss the following statements:
a. The Keynesian multiplier is higher the higher is the degree of openness of the economy'.
b. 'There is no easy policy answer when it comes to dealing with a negative supply shock'.
Consider the following economy. The production function is F(K,L) = K0.3 Lº.7. The saving rate
and the depreciation rate are respectively: s = 0.10 and 8 = 0.07. Population growth is 1%, i.e.
n = 0.01.
c. Derive the capital accumulation equation for this economy.
d. Find the steady state value of the capital stock per capita.
e. Suppose that the initial capital stock per capita is: k = 1.5. Discuss the process of
convergence of the economy to the steady state using the appropriate diagram.
f. Calculate the optimal saving rate of the economy and discuss whether the economy at the
steady state over or under-accumulates capital.
Suppose aggregate demand in the economy sharply decines. Keynesian economists say that the price level (at least for a time) will
and real output wil
O remain constant; decrease
Increase; remain constant
remain constant; increase
decrease; remain constant
lo000
Consider a closed economy (no trade) where:
C = 400+0.8YD
lo = 1600
Go = 2200
NT = 0.2Y
a. Calculate Y*.
b. If Yp=10,000, is there an inflationary or recessionary gap?
c. Calculate the change in government expenditure (G) necessary to move the
economy back to its potential.
Chapter 38 Solutions
ECONOMICS W/CONNECT+20 >C<
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- 5. Refer to the data in the table that accompanies problem 2. Suppose that the present equilibrium price level and level of real GDP are 100 and $225, and that data set B represents the relevant aggregate supply schedule for the economy. LO12.6 a. What must be the current amount of real output demanded at the 100 price level? b. If the amount of output demanded declined by $25 at the 100 price level shown in B, what would be the new equilibrium real GDP? In business суcle economists call this change in real terminology, what would GDP?arrow_forwardSuppose that the table presented below shows an economy's relationship between real output and the inputs needed to produce that output: Input Quantity Real GDP 150.0 $ 400 112.5 300 75.0 200 Instructions: Enter your responses answers rounded to 2 decimal places. a. What is the level of productivity in this economy? b. What is the per-unit cost of production if the price of each input unit is $2? $ C. Assume that the input price increases from $2 to $3 with no accompanying change in productivity. What is the new per-unit cost of production? In what direction would the $1 increase in input price push the economy's aggregate supply curve? (Click to select) v What effect would this shift of aggregate supply have on the price level and the level of real output? O The price level would decrease and real output would increase. O Both the price level and real output would remain the same. O The price level would decrease and real output would remain the same. O The price level would increase…arrow_forward: Which of the following statements is true if there is an increase in aggregate demand while the economy is in equilibrium on a positively sloping short-run aggregate supply curve? 3 - O a) Prices rise, national income does not change B) Prices decrease, national income does not change O C) Prices go up and national income goes down. O D) Prices decrease and national income decreases. O TO) Prices rise, national income risesarrow_forward
- Price Level LAS SAS, SAS, AD SAS, AD, AD, Real Output Refer to the graph. Suppose the economy is at SAS, and AD₂. What is a possible way the economy can return to potential output? What dynamic price level feedback effect could prevent the return to potential output? How would the dynamic price level feedback effect show up in the graph? O A decrease in asset prices in the economy; a decrease in asset prices would further decrease AD; a shift in AD from AD2 to AD3 O A decrease in material costs in the economy; a decrease in material costs would decrease AD; a shift in AD from AD2 to AD1 A decrease in wages in the economy; a decrease in wages would further decrease AD; a shift in AD from AD2 to AD3 A decrease in wages in the economy; a decrease in wages would further decrease AD; a shift in AD from AD2 to AD1arrow_forward8. Assume that (a) the price level is flexible upward but not downward and (b) the economy is currently operating at its full-employment output. Other things equal, how will each of the following affect the equilibrium price level and equilibrium level of real output in the short run? L012.6 a. An increase in aggregate demand. b. A decrease in aggregate supply, with no change in aggregate demand. c. Equal increases in aggregate demand and aggregate supply. d. A decrease in aggregate demand. e. An increase in aggregate demand that exceeds an increase in aggrega supply.arrow_forwardPrice Level 0 O 1; 2; 4 O 1; 2; 3 Real Domestic Output In the diagram, the economy's immediate-short-run AS curve is line short-run AS curve is and its long-run AS curve is line O 2; 3; 4 O3; 2; 1 2 3 itsarrow_forward
- 9:22 1 LTE Aggregate D&S assignment chap 12.... Assignment Chapter 12 1. Suppose that the aggregate demand and aggregate supply schedules for a hypothetical economy are as shown below: LO5 Amount of Amount of Real GDP Real GDP Demanded, Billions Price Level Supplied, Billions (Price Index) $100 300 $450 200 250 400 300 200 300 400 150 200 500 100 100 a. Use these sets of data to graph the aggregate demand and aggregate supply curves. What is the equilibrium price level and the equilibrium level of real output in this hypothetical economy? Is the equilibrium real output also necessarily the full-employment real output? b. If the price level in this economy is 150, will quantity demanded equal, exceed, or fall short of quantity supplied? By what amount? If the price level is 250, will quantity demanded equal, exceed, or fall short of quantity supplied? By what amount? c. Suppose that buyers desire to purchase $200 billion of extra real output at each price level. Sketch in the new…arrow_forward4. LO 4 In Figure 3.11, after the 1981-1982 reces- sion, does the price level appear to be procyclical, countercylical, or acyclical? Why is this important?arrow_forwarde Page 426 13.1. What is the aggregate demand-aggregate supply model? Fill in the blanks to complete the following passage concerning the history of U.S. recessions. Since the year 1900, the United States has experienced recessions. Since 1970, recessions have occurred. 2 7 22 42 + LO 5 10arrow_forward
- demanded equal, exceed, or fall short of quantity supplied? llowing L012.4 c. Suppose that buyers desire to purchase $200 billion of extra real output at each price level. Sketch in the new aggregate By what amount? demand curve as AD,. What are the new equilibriumsate Real GDP level and level of real output? 4. Suppose that the table presented below shows an economy's relationship between real output and the inputs needed to pro- 225 225 duce that output: LO12.4 225 Real GDP 225 Input Quantity 150.0 $400 in the t run? 112.5 300 75.0 200 ut per a. What is productivity in this economy? b. What is the per-unit cost of production if the price of each input unit is $2? c. Assume that the input price increases from $2 to $3 with no accompanying change in productivity. What is the new per- unit cost of production? In what direction would the $1 increase in input price push the economy's aggregate supply curve? What effect would this shift of aggregate supply have on the price level and the…arrow_forwardPrice level 170 140 F 120 100 0 L AS AD3 AD, AD₂ 3.0 4.0 5.0 6.0 7.0 8.0 Real GDP In Exhibit 10-8, if aggregate demand shifts from AD₁ to AD2. a. real GDP will increase from $3.0 to $7.0, and the price level will remain the same. AD5 ADA Ob. real GDP and the price level will both remain the same. Oc. real GDP will increase from $3.0 to $4.0, and the price level will increase from 100 to 140. O d. real GDP will increase from $3.0 to $4.0, and the price level will remain the same.arrow_forwardPrice level LRAS AS1 Figure 12.8 C B A ASO AS₂ AD₁ ADO E Y2 Yo Y₁ Aggregate output ($ billion) AD₂ Refer to Figure 12.8. This economy cannot continue to produce Y₁ (or at point B) because O the price of raw material will increase, shifting the aggregate demand curve to AD2. O all of the above O the price of raw material and wages will increase shifting the aggregate supply curve to AS₁. O the price of inputs will decrease, shifting the aggregate supply curve to AS2.arrow_forward
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