Q1) Explain and illustrate how the interaction of the AD and SRAS curves determines thecourse of GDP and the price level in response to (a) rise in wage rate, (b) an increase ininvestment, c) reduction in government spending, d) boom in demand in neighbouringeconomies.

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Explain and illustrate how the interaction of the AD and SRAS curves deter

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter8: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 3WNG

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Q1) Explain and illustrate how the interaction of the AD and SRAS curves determines the
course of GDP and the price level in response to (a) rise in wage rate, (b) an increase in
investment, c) reduction in government spending, d) boom in demand in neighbouring
economies.

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Determine whether the ad or as curve with shift with each scenarios below. Each situation is independent of each other. 1- a increase in the personal income tax rate. AD or AS 2-an increase in government spending 3-decrease in resource prices 4-decrease in subsidies for businesses 5-decrease in interest rates
Several factors can cause the SRAS curve to shift; these factors include a change in the cost of inputs, a change in taxes, and even a change in seller expectations. a. True b. False
Suppose that in 2008, Sanaton’s government increases taxes. Show how this event will change equilibrium output and price level by shifting either the SRAS or AD curve, and then answer the questions below. Did equilibrium output increase or decrease?Increase/Decrease Did equilibrium price increase or decrease?Increase/Decrease
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Suppose the economy begins with output equal to its natural level. Then there is an increase in consumer confidence and households attempt to consume more for a given level of disposable income. a. Using the AS-AD and IS-LM models, show the effects of an increase in consumer confidence on the position of the AD, AS, IS, and LM curves in the short run and in the medium run. Precisely label all axes and curves to receive full credit. Label the short-run equilibrium and medium-run equilibrium with SR and MR, respectively. b. Explain the transition process from the short-run equilibrium to the medium-run equilibrium. In particular, discuss what makes the equilibrium changes over time. c. ] Can private saving increase in the short run when there is an increase in consumer confidence? Discuss about the necessary condition for the higher private saving in the short run.
Your Policy Brief team has modelled the effects of an investment in Research & Development (R&D) that leads to the invention of a new production method which makes more efficient use of renewable energy sources. This new production method can be disseminated throughout the economy, bringing down production costs for businesses, and enabling the economy to make more productive use of existing resources. This brings an expansion in the economy’s productive capacity. Illustrate the predicted effects of this innovation using an AD-AS diagram. Provide bullet points to explain what is happening in your diagram. As with all of your diagrams, be sure to indicate the original and new equilibrium points, and what happens to output and price level. To conclude your explanation, explain what the link between innovation and economic prosperity and wellbeing is.