1. Draw five aggregate supply and demand graphs at long run equilibrium. Illustrate what would happen to the price level, output and employment under the following circumstances: a. Congress raises tax rates to fight the growing deficit. b. Businesses growing more depressed about future earnings. C. Energy prices rise dramatically across the US. d. Demand-pull inflation sets in. e. Economies of Canada and Mexico (two of our biggest trading partners) fall into recession.

1. Draw five aggregate supply and demand graphs at long run equilibrium. Illustrate what would happen to the price level, output and employment under the following circumstances: a. Congress raises tax rates to fight the growing deficit. b. Businesses growing more depressed about future earnings. C. Energy prices rise dramatically across the US. d. Demand-pull inflation sets in. e. Economies of Canada and Mexico (two of our biggest trading partners) fall into recession.

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 1PA

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The economy is in long run equilibrium. Congress’s passage of new laws significantly increasing the regulation of business. It is assumed that everything else stays constant. What do we expect in aggregate demand, short run aggregate supply aggregate supply in short run? And what happens in long run, and long run equilibrium price level and output? Explicitly state what happens to equilibrium price level and output in both short run and long run and how economy corrects from short run to long run.
16. Why is the aggregate supply curve completely vertical in the long run? A. Short-run business cycles do not affect short-run output. B. Aggregate supply is impossible to illustrate in the long run. C. A country’s total output will always be constant. D. A country’s total output is not affected by price in the long run.
19. Which action would cause the aggregate supply curve slope to change in the short run? A. high income taxes B. changes in profit C. shortages in a specific market D. free market
1. in the dynamic model of aggregate demand and aggregate supply, increase in the natural level of output lead to ------ in output and---in inflation. a) increase, no change b) no change, no change c) increase, increase d) no change , increase 2) beginning at long run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the period in which positive supply shock occurs, the DAS curve------ and the DAD curve----- a) shifts upward, does not shift b) shifts upward, shifts rightward c) shifts downward, shifts leftward d) does not shift, does not shift.
part C D 3 . An economy experiences an adverse supply shock. a) Draw an AD-AS diagram to illustrate the effect of the shock. Be sure to include the LRAS line. b) What happens to output in the short run? What form of output gap (positive or negative) is formed? What happens to the aggregate price level in the short run? c) How will the long run equilibrium be restored? (Assume there is no fiscal and no monetary policy to help the process.) Explain and add this to your diagram. d) Does the process create inflation or deflation?
2. The Aggregate Supply (AS) curve slopes upward to reflect the profit motive of businesses. So, why are there two versions of the AS curve( i.e. short run and long- run). Discuss.