The following graph shows the short-run aggregate supply (SRAS) and aggregate demand (AD) curves for a fictional economy that is producing atpoint A (grey star symbol), which corresponds to the intersection of the AD₁ and SRAS₁ curves.8070605040302010001LRAS----XXSRAS₂SRAS₁AD₂234 5 6QUANTITY OF OUTPUT (Trillions of dollars)7According to the graph, actual output of this economy isAD₁8No InterventionIntervention(?)than potential output, which means that the economy experiencesAlong SRAS₁, wages would have been negotiated based on an expected price level of . Since the actual price level at point A is 30, this meansthat real wages are▼ had been negotiated, which willunemployment.If the Fed does not intervene, these labor market conditions would cause nominal wages toEventually, the economy would reach a new long-run equilibrium., shifting thecurve to the On the previous graph, place the purple point (diamond symbol) at the new long-run equilibrium output and price level if the Fed intervenes. (Hint:Assume there are no feedback effects on the curve that does not shift.)Now, suppose the Fed chooses to intervene in an effort to move the economy more quickly back to its potential output. To do so, the Fed willthe money supply, which will▼ the interest rate, thereby giving firms an incentive to▼ investment, shiftingthecurveOn the previous graph, place the green point (triangle symbol) at the new long-run equilibrium output and price level if the Fed does notintervene and successfully brings the economy back to long-run equilibrium. (Hint: Assume there are no feedback effects on the curve that does notshift.)Compare your answers to the previous few questions. If the Fed does not intervene, the economy will likely have relativelythe other hand, if the Fed does intervene, it risks causing relatively, especially if it changes the money supply too much.On

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The following graph shows the short-run aggregate supply (SRAS) and aggregate demand (AD) curves for a fictional economy that is producing at point A (grey star symbol), which corresponds to the intersection of the AD₁ and SRAS₁ curves. PRICE LEVEL 80 70 60 50 40 30 20 10 0 0 LRAS 1 I 1 SRAS₂ SRAS₁ 1 AD₂ 2 3 4 5 6 QUANTITY OF OUTPUT (Trillions of dollars) 7 According to the graph, actual output of this economy is AD₁ 8 Δ No Intervention Intervention (?) than potential output, which means that the economy experiences Along SRAS₁, wages would have been negotiated based on an expected price level of that real wages are had been negotiated, which will Since the actual price level at point A is 30, this means unemployment. If the Fed does not intervene, these labor market conditions would cause nominal wages to Eventually, the economy would reach a new long-run equilibrium. , shifting the curve to the

The following graph shows the short-run aggregate supply (SRAS) and aggregate demand (AD) curves for a fictional economy that is producing at point A (grey star symbol), which corresponds to the intersection of the AD₁ and SRAS₁ curves. PRICE LEVEL 80 70 60 50 40 30 20 10 0 0 LRAS 1 I 1 SRAS₂ SRAS₁ 1 AD₂ 2 3 4 5 6 QUANTITY OF OUTPUT (Trillions of dollars) 7 According to the graph, actual output of this economy is AD₁ 8 Δ No Intervention Intervention (?) than potential output, which means that the economy experiences Along SRAS₁, wages would have been negotiated based on an expected price level of that real wages are had been negotiated, which will Since the actual price level at point A is 30, this means unemployment. If the Fed does not intervene, these labor market conditions would cause nominal wages to Eventually, the economy would reach a new long-run equilibrium. , shifting the curve to the

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter14: Aggregate Demand And Supply

Section: Chapter Questions

Problem 2SQ

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The table below shows information on aggregate supply, aggregate demand and the price level for the imaginary country of Xurbia. Price Level AD AS 110 700 600 120 690 640 130 680 680 140 670 720 150 660 740 160 650 760 170 640 770 Plot the AD/AS diagram from the data shown (Don't have to show graph but do draw it to help you answer the questions). a. Identify the equilibrium. b. Imagine that as a result of a government tax cut, aggregate demand becomes higher by 50 at every price level. Identify the new equilibrium. c. How will the new equilibrium alter output? How will it alter the price level? What do you think will happen to employment?
The imaginary country of Harris Island has the aggregate supply and aggregate demand curves as Table shows. Price Level: AD/AS Price Level AD AS 100 800 300 120 700 425 140 600 600 160 500 670 180 400 720 Plot the AD/AS diagram (You don't have to submit the plot, but I recommend doing it as it will help you with this problem). Identify the equilibrium. Blank #1 - Equilibrium Price Level Blank #2 - Equilibrium GDP Blank #3 - Would you expect unemployment in this economy to be relatively high or low? Blank #4 - Would you expect concern about inflation in this economy to be relatively high or low? Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Blank #5 - What is the new equilibrium GDP? Blank #6 - What is the new equilibrium Price Level? How will the shift in AD affect (answer is rise or fall)..
The graph below shows the AD-AS diagram for Spain. Suppose that the economy is initially in long-run equilibrium with the price level of 900. Now suppose that the Aggregate Demand (AD) curve shifts left from AD1 (blue) to AD2 (green). 1200 AD 1100 1000 Price Level ADS 900- 800 79R ST 600* 500 400 300 200- 100- LRAS 100 200 300 400 500 600 700 800 900 1000 1100 120 Real GDP Q 1. What is the new GDP in the short-run as a result of this shift? I 2. What is the new price level in the short-run as a result of this shift? 3. What is the price new long-run equilibrium as a result of this shift? 4. What is GDP in the new long-run equilibrium as a result of this shift? 5. What causes the economy to move from the short-run equilibrium to the new long-run equilibrium? O Decreased wages. O increased wages. O Increased prices. O Decreased prices.
The following graph shows an increase in aggregate demand (AD) in a hypothetical country. Specifically, aggregate demand shifts to the right from AD1 to AD2, causing the quantity of output demanded to rise at all price levels. For example, at a price level of 140, output is now $400 billion, where previously it was $300 billion. 170 160 150 140 - 130 AD2 120 110 AD, 100 90 100 200 300 400 500 600 700 800 OUTPUT (Billions of dollars) The following table lists several determinants of aggregate demand. Complete the table by indicating the change in each determinant necessary to increase aggregate demand. Change Needed to Increase AD Wealth Taxes Interest rates The value of the domestic currency relative to the foreign currency PRICE LEVEL
CAN YOU DRAW GRAPH FOR INVESTMENT, CONSUMPTION AND AGGREGATE DEMAND
The imaginary country of Harris Island has the aggregate supply and aggregate demand curves as Table shows. Price Level: AD/AS Price Level AD AS 100 800 300 120 700 425 140 600 600 160 500 670 180 400 720 Plot the AD/AS diagram (You don't have to submit the plot, but I recommend doing it as it will help you with this problem). Identify the equilibrium. Blank #1 - Equilibrium Price Level Blank #2 - Equilibrium GDP Blank #3 - Would you expect unemployment in this economy to be relatively high or low? Blank #4 - Would you expect concern about inflation in this economy to be relatively high or low? Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Blank #5 - What is the new equilibrium GDP? Blank #6 - What is the new equilibrium Price Level? How will the shift in AD affect (answer is rise or fall)... Blank #7 - the original output? Blank #8 - the price…
Suppose you are given the following information about an economy: Short run Aggregate Supply: SRAS = Y = 5000r+ 14,400 Long run Aggregate Supply: Aggregate Demand: Investment Spending: Consumption Spending: Government Spending: Net Exports (eX – iM): LRAS = Y* = 25,000 AD = Y=C+I+G+NX_ I = 4000 – 250r C = 1000 +0.75(Y – T) G = 2000 NX = 500 Taxes – Transfers: T = 2400 Monetary Policy: Money Demand: Money Market equilibrium: Fisher equation: where i is the nominal interest rate (i.e. when the interest rate is 7%, it means i= 7) r = 2 n м 3 20,000- 2000i M$ = MD i = r+T e. Find the short run equilibrium level of real GDP (Y), and inflation rate (t), in the short run. What is the output gap in the economy? Is it an expansionary or recessionary gap?
The following graph shows the aggregate demand (AD) and aggregate supply (AS) curves for the United States in 1941. Shift one of the curves on the following graph to illustrate the effect of increased U.S. government spending during World War II.
Economic On April 27, 2023, the U.S. Bureau of Economic Analysis (BEA) released the data on GDP growth for the US economy for the first quarter of 2023 and revealed that the economy grew sluggishly by only 1.1 percent. Based on this report, suppose the U.S. consumers and businesses start to become pessimistic about the direction of the economy and eventually cut consumer and business spending, analyze using the IS-LM and AD-AS frameworks the short and long-run effects of such a shock on prices, output, and real interest rate.
Can you inform from the graph the movement of the price level in the economy since the beginning of 2021? Explain GDP Were we ever in a recession during the period? How do you know?
The table below shows aggregate demand and aggregate supply schedules in a hypothetical economy, Acadia. Aggregate Demand and Aggregate Supply Schedules for Acadia Real GDP PADO) (AD1) (ASo) (AS1) Price Level (2012 = 100) (2012 $ billions) 140 150 200 230 280 130 170 220 220 270 120 190 240 190 240 110 210 260 160 210 100 230 280 120 170 a. Draw a graph showing Acadia's ADO, AD1, ASo and AS1. Using the tools given below plot only the endpoints of the demand curves ADo and AD1. Plot all 5 points for each supply curve, ASo and AS1. ces Aggregate Demand and Supply for a hypothetical economy, Acadia 150 Tools 140 ADO AD1 130 120 ASo AS1 110 100 90 100 150 200 250 300 Real GDP (2012 $ billion) Price Level (GDP deflator 2012 = 100)
On the following graph, plot the aggregate demand curve that results from varying the price level from 110 to 130 to 150, holding all else equal.