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8. Economic fluctuations II The following graph shows the short-run aggregate supply curve (AS), the aggregate demand curve (AD), and the long-run aggregate supply curve (LRAS) for a hypothetical economy. Initially, the expected price level is equal to the actual price level, and the economy is in long-run equilibrium at its natural level of output, $120 billion. Suppose war in the world's main oil-producing region sharply reduces the world oil supply, causing oil prices to rise and increasing the costs of producing goods and services in this economy. 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 higher oil prices on the natural level of output. ? 140 LRAS AS CE LEVEL 135 130 125 120 AD I AS 14

8. Economic fluctuations II The following graph shows the short-run aggregate supply curve (AS), the aggregate demand curve (AD), and the long-run aggregate supply curve (LRAS) for a hypothetical economy. Initially, the expected price level is equal to the actual price level, and the economy is in long-run equilibrium at its natural level of output, $120 billion. Suppose war in the world's main oil-producing region sharply reduces the world oil supply, causing oil prices to rise and increasing the costs of producing goods and services in this economy. 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 higher oil prices on the natural level of output. ? 140 LRAS AS CE LEVEL 135 130 125 120 AD I AS 14

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
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8. Economic fluctuations II The following graph shows the short-run aggregate supply curve (AS), the aggregate demand curve (AD), and the long-run aggregate supply curve (LRAS) for a hypothetical economy. Initially, the expected price level is equal to the actual price level, and the economy is in long-run equilibrium at its natural level of output, $120 billion. Suppose war in the world's main oil-producing region sharply reduces the world oil supply, causing oil prices to rise and increasing the costs of producing goods and services in this economy. 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 higher oil prices on the natural level of output. ? 140 LRAS AS CE LEVEL 135 130 125 120 AD 1 AS -4
Transcribed Image Text:8. Economic fluctuations II The following graph shows the short-run aggregate supply curve (AS), the aggregate demand curve (AD), and the long-run aggregate supply curve (LRAS) for a hypothetical economy. Initially, the expected price level is equal to the actual price level, and the economy is in long-run equilibrium at its natural level of output, $120 billion. Suppose war in the world's main oil-producing region sharply reduces the world oil supply, causing oil prices to rise and increasing the costs of producing goods and services in this economy. 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 higher oil prices on the natural level of output. ? 140 LRAS AS CE LEVEL 135 130 125 120 AD 1 AS -4
125 120 Q115 110 105 100 PRICE LEVEL AS 14 LRAS AD 100 105 110 115 120 125 130 135 140 OUTPUT (Billions of dollars) The short-ru economic outcome resulting from the increase in production costs is known as Now suppose that the government decides not to take any action in response to the short-run economic impact of the higher oil prices. In the long run, when the government does nothing, the output in the economy will be $ billion and the price level will be
Transcribed Image Text:125 120 Q115 110 105 100 PRICE LEVEL AS 14 LRAS AD 100 105 110 115 120 125 130 135 140 OUTPUT (Billions of dollars) The short-ru economic outcome resulting from the increase in production costs is known as Now suppose that the government decides not to take any action in response to the short-run economic impact of the higher oil prices. In the long run, when the government does nothing, the output in the economy will be $ billion and the price level will be
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