TOTK (CIT 201120115PRICE LEVEL110105100959088580BO8185LRASASADASK19LRASAD0095100 106 110 115 120OUTPUT (Billions of dollars)ģThe short-run economic outcome resulting from the increase in production costs is known asSupposnow that the government immediately pursues an accommodative policy by increasing government purchases in response to the short-runimpact of the severe weather.In the long run, given that the government pursues accommodative policy, the output level in the economy will equal $level will equalbillion and the price The following graph shows the aggregate demand curve (AD), the short-run aggregate supply curve (AS), and the long-run aggregate supply curve (LRAS) for a hypothetical economy. Initially, the expected price level equals the actual price level, and the economy experiences long-run equilibriumat a natural level of output of $100 billion..Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs ofproducing goods and services.Use the graph to help you answer the questions about the short-run and long-run effects of the increase in production costs that follow. (Note: Youwill not be graded on any adjustments made to the graph.)Hint: For simplicity, ignore any possible impact of the severe weather on the natural level of output.

The aggregate demand curve illustrates how the quantity of aggregate output demanded by households,…

120 PRICE LEVEL 115 110 105 100 95 8 90 85 80 80 85 00 LRAS AS AD 15 100 106 110 115 120 OUTPUT (Billions of dollars) AD AS LRAS The short-run economic outcome resulting from the increase in production costs is known as Suppoutnow that the government immediately pursues an accommodative policy by increasing government purchases in response to the short-run impact of the severe weather. In the long run, given that the government pursues accommodative policy, the output level in the economy will equal S level will equal billion and the price

120 PRICE LEVEL 115 110 105 100 95 8 90 85 80 80 85 00 LRAS AS AD 15 100 106 110 115 120 OUTPUT (Billions of dollars) AD AS LRAS The short-run economic outcome resulting from the increase in production costs is known as Suppoutnow that the government immediately pursues an accommodative policy by increasing government purchases in response to the short-run impact of the severe weather. In the long run, given that the government pursues accommodative policy, the output level in the economy will equal S level will equal billion and the price

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:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter9: An Introduction To Basic Macroeconomic Markets

Section: Chapter Questions

Problem 2CQ

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The following graph shows an increase in aggregate supply (ASAS) in a hypothetical economy. Specifically, aggregate supply shifts to the right from AS1AS1 to AS2AS2, causing the quantity of output supplied at a price level of 125 to rise from $250 billion to $350 billion. The following table lists several determinants of aggregate supply. Complete the table by indicating the changes in the determinants necessary to increase aggregate supply. Determinant Change Needed to Increase ASAS Nominal Wage Rate Tax Rates Technology
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Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves. Assume the central bank in this economy (the Fed) fixes the quantity of money supplied. Suppose the price level decreases from 150 to 125. Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money. Money Supply 15 12 4 Money Demand 3 5 10 15 20 MONEY (Billions of dollars) INTEREST RATE (Percent) 18 0 0 25 30 Money Demand Money Supply (?) Following the price level decrease, the quantity of money demanded at the initial interest rate of 9% will be supplied by the Fed at this interest rate. As a result, individuals will attempt to bonds and other interest-bearing assets, and bond issuers will realize that they restored in the money market at an interest rate of than the quantity of money their money holdings. In order to do so, they will interest rates until equilibrium is
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The following graph plots aggregate demand (AD2027AD2027) and aggregate supply (AS) for the imaginary country of Cotopaxi in the year 2027. Suppose the natural level of output in this economy is $6 trillion. On the following graph, use the green line (triangle symbol) to plot the long-run aggregate supply (LRAS) curve for this economy. Economists forecast that if the government takes no action and the economy continues to grow at the current rate, aggregate demand in 2028 will be given by the curve labeled ADAADA, resulting in the outcome given by point A. If, however, the government pursues an expansionary policy, aggregate demand in 2028 will be given by the curve labeled ADBADB, resulting in the outcome given by point B. The following table presents projections for the unemployment rates that would occur at point A and point B. Consider the potential rate of inflation between 2027 and 2028, depending on whether the economy moves from the initial price level of 102 to the…