Answered: Consider the figure to the right. In…

Principles of Economics, 7th Edition (MindTap Course List)

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter33: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 5PA

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Consider the figure to the right. In the absence of a change in aggregate demand, what effect does

negative economic growth have on the price level over time, other things being equal? Why?

1.) Draw a new long-run aggregate supply curve that shows the effects of negative economic growth on the economy's long-run equilibrium. Label your line 'LRAS2.'

2.) Indicate the economy's new long-run equilibrium price and level of real GDP. Label this point

'E2.'

The change in the price level over time due to negative economic growth and the subsequent shift in long-run aggregate supply is known as

Consider the figure to the right. In the absence of a change in aggregate demand, what
effect does positive economic growth have on the price level over time, other things
being equal? Why?
1.) Using the line drawing tool, draw a new long-run aggregate supply curve that shows
the effects of positive economic growth on the economy's long-run equilibrium. Label
your line 'LRAS₂.
2.) Using the point drawing tool, indicate the economy's new long-run equilibrium price
and level of real GDP. Label this point 'E₂.
Carefully follow the instructions above, and only draw the required objects.
*******
Price Level
a
LRAS₁
E₁
Real GDP per Year ($ trillions)
AD₁

Definition Definition Increase in the amount of goods and services produced by a country in a given period of time compared to an earlier period. Economic growth is generally coupled with a rise in national income or the purchasing power of individuals. It is often measured in terms of the increase in a country's gross domestic product (GDP), or the overall monetary value of all the complete or final services and goods that a country can produce within its domestic boundaries in a specific period.

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