Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506725
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 9, Problem 7CQ
To determine
Explain the reason why it is possible for the economy to temporarily achieve output levels beyond the long-run potential level.
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What happens when firms and workers underestimate future prices in the economy. On what would happen to actual output as opposed to the expected potential output.
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Economics: Private and Public Choice (MindTap Course List)
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- Recent data from the Bureau of Labor Statistics show that the average price level for consumers rose 5.4% over the past year. While some are expressing concern over rising inflation leading the economy to “overheat,” there is some evidence indicating that this is due to the reopening of the economy as producers adjust to rising demand for goods and services. Many of the goods with the largest price increases, like bacon or cars and trucks, cannot have their production ramped up as quickly as demand is increasing. Other industries are facing supply chain challenges, like shortages of truck drivers. These problems are most likely to be short term, so, as supply catches up with demand, we can expect to see prices return to normal. As evidence, after spiking to record highs in early summer, lumber prices have now fallen below their price at the start of the year. The reason for the dramatic price increase earlier in the year was a combination of reduced supply in 2019 and a surge in demand…arrow_forwardSuppose the government undertakes a large spending program to build community colleges and to make higher education free for many low-income families. How would you expect the program to affect output in the short run? Assuming that the program succeeds in increasing the skills of some workers, how would you expect it to output in the long run?arrow_forwardIdentify the point or points for which the following is true: The economy cannot reach this point without an increase in resources or improvement in technologyarrow_forward
- if actual real GDP is greater than the equilibrium level of real gdp what happens to restore equilibrium to the economy?arrow_forwarddescribe what happens when firms and workers underestimate future prices in the economy. what would happen to actual output as opposed to the expected potential output.arrow_forwardFor each of the following scenarios predict how the price level and output will change over time from immediate impact to long-run impact. In each case, consider an economy that was initially producing at its level of potential output. a. The government passes legislation that increases corporate taxes by 25%. b. Economies around the globe are experiencing a time of prosperity and, as a result, demand for U.S. exports increases.arrow_forward
- Consider the long-run equilibrium output, the potential output, the full-employment output, and the natural rate of output. Are their output levels the same or different?arrow_forwardWhat happens when firms and workers underestimate future prices in the economy? Explain the answer while focusing on what would happen to actual output as opposed to the expected potential output.arrow_forwardDue to COVID-19 situations the oil prices fall in international market. Let’s assume that output starts at its natural level. What happens to the Pakistan’s economy (output and price) in the short run? Explain your answer using AS-AD graphs. What happens to Pakistan’s economy (output and price) in the long run? Explain your answers using graphs.arrow_forward
- What are the results of economic policies in Mexico and what do they look like in the short-run and long-run? Include an AD-AS Model graph that shows the results of your recommended economic policies.arrow_forwardA production possibilities curve (PPC) represents the maximum amount of two goods or services produced by manufacturers in an economy. How are the PPC and long-run aggregate supply curve similar?arrow_forwardIf households decide to save a larger portion of their income, what effect would this have on the output, employment, and price level in the short run? What about the long run?arrow_forward
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