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0 9. Economic fluctuations II The following graph shows the aggregate demand curve (AD), the short-run aggregate supply curve (AS), and the long-run aggregate supply curv LRAS) for a hypothetical economy. Initially, the expected price level equals the actual price level, and the economy experiences long-run equilibriu at a natural level of output of $110 billion. Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs of producing 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: You will 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. PRICE LEVEL 130 125 120 115 110 105 100 95 90 8 90 LRAS AS, AD 95 -100 105 110 115 120 125 130 OUTPUT (Billions of dollars). AD -0- AS 18 LRAS The short-run economic outcome resulting from the increase in production costs is known as Suppose now that the government immediately pursues an accommodative policy by incre impact of the severe weather. In the long run, given that the government pursues accommodative policy, the output level in evel will equali hyperinflation stagflation monetary neutrality deflation N-Z thases in response to the short-r billion and the price

0 9. Economic fluctuations II The following graph shows the aggregate demand curve (AD), the short-run aggregate supply curve (AS), and the long-run aggregate supply curv LRAS) for a hypothetical economy. Initially, the expected price level equals the actual price level, and the economy experiences long-run equilibriu at a natural level of output of $110 billion. Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs of producing 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: You will 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. PRICE LEVEL 130 125 120 115 110 105 100 95 90 8 90 LRAS AS, AD 95 -100 105 110 115 120 125 130 OUTPUT (Billions of dollars). AD -0- AS 18 LRAS The short-run economic outcome resulting from the increase in production costs is known as Suppose now that the government immediately pursues an accommodative policy by incre impact of the severe weather. In the long run, given that the government pursues accommodative policy, the output level in evel will equali hyperinflation stagflation monetary neutrality deflation N-Z thases in response to the short-r billion and the price

Brief Principles of Macroeconomics (MindTap Course List)
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter15: Aggregate Demand And Aggregate Supply
Section: Chapter Questions
Problem 8PA
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R 9. Economic fluctuations II The following graph shows the aggregate demand curve (AD), the short-run aggregate supply curve (AS), and the long-run aggregate supply cur LRAS) for a hypothetical economy. Initially, the expected price level equals the actual price level, and the economy experiences long-run equilibriu at a natural level of output of $110 billion. Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs of producing 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: You will 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. PRICE LEVEL 130 125 120 115 110 105 100 95 90 90 LRAS AS, AD 95 -100 105 110 115 120 125 130 OUTPUT (Billions of dollars) AD AS LRAS The short-run economic outcome resulting from the increase in production costs is known as Suppose now that the government immediately pursues an accommodative policy by incre impact of the severe weather. In the long run, given that the government pursues accommodative policy, the output level in evel will equali hyperinflation stagflation monetary neutrality deflation A-Z Grade It Now نية C thases in response to the short-r billion and the price Save & Continua
Transcribed Image Text:R 9. Economic fluctuations II The following graph shows the aggregate demand curve (AD), the short-run aggregate supply curve (AS), and the long-run aggregate supply cur LRAS) for a hypothetical economy. Initially, the expected price level equals the actual price level, and the economy experiences long-run equilibriu at a natural level of output of $110 billion. Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs of producing 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: You will 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. PRICE LEVEL 130 125 120 115 110 105 100 95 90 90 LRAS AS, AD 95 -100 105 110 115 120 125 130 OUTPUT (Billions of dollars) AD AS LRAS The short-run economic outcome resulting from the increase in production costs is known as Suppose now that the government immediately pursues an accommodative policy by incre impact of the severe weather. In the long run, given that the government pursues accommodative policy, the output level in evel will equali hyperinflation stagflation monetary neutrality deflation A-Z Grade It Now نية C thases in response to the short-r billion and the price Save & Continua
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