Assume that aggregate demand is unaffected by the gas tax holiday. After the economy has fully adjusted to the gas tax holiday, the long-run effect is (an increase, no change, a decrease) in aggregate output and (an increase, no change, a decrease) in the price level. 4. Shifts of the aggregate supply curveWhich of the following would shift the SRAS curve to the right (ignoring any potential effect on LRAS)?There is a technological improvement that allows firms to reduce their costs of production permanently.The interest rate decreases, spurring investment spending.The world price of oil increases rapidly without warning but is not expected to remain at the new high level permanently. However, in theshort run, it is more costly for all firms to produce goods and services.The government introduces a set of new regulations that make it more costly for firms to produce and sell goods and services. Theseregulations are expected to be permanent.O There is an increase in government spending. The following graph shows the short-run aggregate supply (SRAS) curve and the long-run aggregate supply (LRAS) curve for an economy. Supposethe government passes a temporary "gas tax holiday," removing the federal tax on gasoline between May and September.Illustrate the short-run effect of this change, before any long-run adjustments have taken place, by shifting one or both of the supply curves (SRAS and LRAS) on the following graph. If you do not believe there will be any long-term effects, leave the LRAS in its current position.Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps backto its original position, just drag it a little farther.240LRASSRAS200SRAS180LRAS1208040AD121824REAL GDP (Trillions of dollars)Assume that aggregate demand is unaffected by the gas tax holiday. After the economy has fully adjusted to the gas tax holiday, the long-run effect isin aggregate output andin the price level.PRICE LEVEL

Aggregate demand is the total demand for all goods and services in an economy at a given time and…

Assume that aggregate demand is unaffected by the gas tax holiday. After the economy has fully adjusted to the gas tax holiday, the long-run effect is (an increase, no change, a decrease) in aggregate output and (an increase, no change, a decrease) in the price level.

Assume that aggregate demand is unaffected by the gas tax holiday. After the economy has fully adjusted to the gas tax holiday, the long-run effect is (an increase, no change, a decrease) in aggregate output and (an increase, no change, a decrease) in the price level.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter24: The Aggregate Demand/aggregate Supply Model

Section: Chapter Questions

Problem 3SCQ: The short run aggregate supply curve was constructed assuming that as the price of outputs...

See similar textbooks

Similar questions

What is the intermediate zone of the SRAS curve? Will a rise in output be accompanied by a rise or a fall in the price level in this zone?
Explain why the short-run aggregate supply curve might be fairly flat in the Keynesian zone of the SRAS curve. How might we tell if we are In the Keynesian zone of the AS?
Suppose the Federal Reserve begins to Increase the supply of money at an Increasing rate. What Impact would that have on GDP, unemployment, and inflation?
The short run aggregate supply curve was constructed assuming that as the price of outputs increases, the puce of inputs stays the same. How would an increase in the prices of important inputs, like energy, affect aggregate supply?
18 - : If aggregate demand increases in an economy while aggregate demand is constant in the short run, which of the following statements is correct for the new equilibrium point?A) price decreases and national income increasesB) price rises national income risesC) price increases and national income does not changeD) price goes up and national income goes downE) price decreases and national income decreases.19 - : In which of the following expressions is the equation of change given correctly?A) MV=VK B) MT=PV C) MV=PT D) MP=VY E) MV=P
11. Which of the following statements about the Long-Run Aggregate Supply (LRAS) are true? a) The LRAS represents the full-employment level of real GDP. b) The LRAS represents the level of income and production consistent with resource markets equilibrium. c) The LRAS represents the potential production of the economy. d) All of the above. e) None of the above. 12. Which of the following describes the way in which the self-correcting mechanism of the economy resolves the problem of a recessionary gap? a) The recessionary gap is cured by an increase in government purchases of goods and services, which implies a shift to the right of the AD curve until full employment equilibrium is reestablished. b) The unemployment associated with a recessionary gap causes wages to fall, increasing Aggregate Supply and thus shifting the AS curve to the right until a full employment equilibrium is reestablished. c) The unemployment…
2. An introduction to the AD-AS model The aggregate demand and aggregate supply model is a useful simplification of the macroeconomy used to explain short-run fluctuations in economic activity around its long-run trend. The vertical axis of a diagram of the aggregate demand and aggregate supply curves measures which of the following? An economy’s price level The amount of a particular representative good produced in the economy The price of a particular representative good produced in the economy Which of the following are reasons that the short-run aggregate supply curve slopes upward? Check all that apply. As the price level rises, firms expand their production because they can sell their output for more money. As the price level rises, firms find it more profitable to hire workers at any given wage. As the price level rises, firms decrease their investment because it is more expensive to purchase capital.
Assume that (a)the price level is flexible upward but not downward and (b) the economy iscurrently operating at its full-employment output. Other things equal, how willeach of the following affect the equilibrium price level and equilibrium levelof real output in the short run?· An increase in aggregate demand.· A decrease in aggregate supply, with no change in aggregatedemand.· Equal increases in aggregate demand and aggregate supply.· A decrease in aggregate demand.· An increase in aggregate demand that exceeds an increase inaggregate supply.
Why is the aggregate demand curve downsloping? Mention three ways of explanations to answer this. Specify how your explanation differs from the explanation for the downsloping demand curve for a single product.
11. Which of he following statements accurately explain the scenario illustrated by these diagrams? a) Assuming ADo and AEo are the original positions of the AD and AE curves respectively, the original situation illustrated is on of a recessionary gap of 10. b) To restore full-employment equilibrium Aggregate Expenditures must be increased to AE1 which is equivalent to shifting the AD curve to AD1 c) Because the short-run Aggregate Supply (AS) curve is upward sloping, the shift in AD will be associated with some products price inflation. This will cause the AE curve to decline from AE1 to AE* because of the wealth, interest rate, and trade effects of inflation. d) All the above. e) Only (a) and (b) are true f) None of the above.
12 Because fluctuations in the world oil price make the U.S. short-run macroeconomic equilibrium fluctuate, someone suggests that the government should vary the tax rate on oil, lowering the tax when the world oil price rises and in- creasing the tax when the world oil price falls, to stabilize the oil price in the U.S. market. How would such an action influence aggregate demand?
10. Which of the following are reasons why the short-run Aggregate Supply curve shown in the right-hand diagrams may be vertical? a) The economy at this level of real GDP would be operating beyond the full-employmetn level. b) Inflationary expectations have set-in so, the owners of resources are acting on these inflationary expectations and insisting on higher resource prices in anticipation of future products price inflation. c) Short-run Aggregate Suply in the Classical model is always constant. d) All the above e) Only (a) and (b) are true. f) None of the above.