8. For the following events, using appropriately labelled diagrams describe the short-run effects of thespecific shock on the aggregate price level and aggregate output in the economy.a) The price of silicon, a key ingredient for the production of solar panels, goes up worldwide.b) The Ministry of Finance in Bangladesh lowers income tax rates.9. The economy is currently in the long-run macroeconomic equilibrium.a) Using a graph, show the economy’s current state.b) Suppose, the government decides to raise the military spending. Using an appropriately labelled|diagram explain what will happen in the economy now.c) What policies can the government_take that might bring the economy back to long-runmacroeconomic equilibrium? Show and explain the effect of one such policy with an appropriatelylabelled diagram.d) If the government did not intervene to close this gap, would the economy return to long-runmacroeconomic equilibrium? Explain and illustrate with an appropriately labelled diagram.10. The table below shows the aggregate demand and short run aggregate supply schedules of India. Thepotential aggregate output of India is 1050 billion rupees.Aggregate Price LevelReal GDP demandedReal GDP supplied in theshort run (billions of(billions of rupees)rupees)10011501050110110011001201050115013010001200140950125015090013001608501350a) Represent the above information in an appropriately labelled diagram.b) What are the short run equilibrium price level and aggregate output?c) Calculate the output gap, and state what type of gap the economy is facing.

8. For the following events, using appropriately labelled diagrams describe the short-run effects of the specific shock on the aggregate price level and aggregate output in the economy. a) The price of silicon, a key ingredient for the production of solar panels, goes up worldwide. b) The Ministry of Finance in Bangladesh lowers income tax rates.

8. For the following events, using appropriately labelled diagrams describe the short-run effects of the specific shock on the aggregate price level and aggregate output in the economy. a) The price of silicon, a key ingredient for the production of solar panels, goes up worldwide. b) The Ministry of Finance in Bangladesh lowers income tax rates.

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

Section15.2: Explaining Short-run Economic Fluctuations

Problem 2QQ

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Shown on the right is an aggregate demand-aggregate supply graph of an economy initially in a long-run equilibrium at point A. Now suppose the economy experiences a negative aggregate demand shock. 1.) Using the line drawing tool, draw the new aggregate demand curve and label it as 'AD2'. 2.) Using the point drawing tool, identify the new short- run equilibrium point and label it as 'B' 3.) Using the line drawing tool, draw the new short-run aggregate supply curve and label it as ". 4.) Using the point drawing tool, identify the new long-run equilibrium point and label it as 'C'. Carefully follow the instructions above and only draw the required objects. LRAS HE P1 Yp Price Level Real GDP SRAS1
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Shown on the right is an aggregate demand-aggregate supply graph of an economy initially in a long-run equilibrium at point A. Now suppose the economy experiences a negative aggregate supply shock. 1.) Using the line drawing tool, draw the new aggregate supply curve and label it as 'SRAS2'. 2.) Using the point drawing tool, identify the new short-run equilibrium point and label it as 'B'. 3.) Using the point drawing tool, identify the new long-run equilibrium point and label it as 'C'. Carefully follow the instructions above and only draw the required objects. Price Level P₁ ما LRAS A AD₁ SRAS. Real GDP
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31) Use the dynamic model of aggregate demand and supply to illustrate a situation where aggregate demand and short-run aggregate supply are both increasing from year 1 to year 2, resulting in a higher price level and higher level of real GDP at macroeconomic equilibrium in year 2. 32) Hurricane Katrina resulted in a decline in oil production infrastructure along the gulf coast. As a result there was an unexpected decline in oil and natural gas supplies in 2005. Suppose that this caused an increase in the price level and a decline in real GDP in 2006. Also assume that potential real GDP continued to grow due to other factors. You can assume the aggregate demand curve did not change. Show the macroeconomic equilibrium for 2005 and 2006 using the dynamic aggregate supply and aggregate demand model. 1
“The oil Price run-up of 2007-08 was caused by strong demand confronting stagnating world production. Although the causes were different, the consequences for the economy appear to have been very similar to those observed in earlier episodes, with significant effects on overall consumption spending and purchases of domestic automobiles in particular. The experience of 2007-08 should thus be added to the list of recessions to which oil prices appear to have made a material contribution.” a) Oil price shocks have an evident impact on the short run aggregate supply curve. With the help of a graph demonstrate how rising oil prices affect the SRAS and explain what other factors can cause this shift. b) Different theories attempted to explain why SRAS curves slope upwards. Identify and explain these theories explaining what they have in common.