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3. Explain the determinants of the
will shift when one of these determinants changes.
4. Using an AD-AS diagram, explain what happens if personal income taxes increase.
5. Explain what will happen to an AD-AS diagram, if there is a decrease in input
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- 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?Review the problem in the Work It Out titled Interpreting the AD/AS Model. Like the information provided in that feature, Table 24.2 shows information on aggregate supply, aggregate demand, and the price level for the imaginary country of Xurbia. Plot the AD/AS diagram from the data. Identify the equilibrium. Imagine that, as a result of a government tax cut, aggregate demand becomes higher by 50 at every price level. Identify the new equilibrium. How will the new equilibrium alter output? How will it alter the price level? What do you think will happen to employment?Explain why the short-run aggregate supply curve might be vertical in the neoclassical zone of the SRAS curve. How might we tell if we are in the neoclassical zone of the AS?
- How is pressure for inflationary price increases shown in an AD/AS model?1) aggregate demnad and aggregate supply in market a) using an ad-as diagram, explain what happens if personal income taxes increases b) explain what will happen to an ad-as diagram, if there is a decrease in input prices c) explain the changes in wages can affect equilibrium2. Explain the determinants of the aggregate demand (AD) and describe how the AD curvewill shift when one of these determinants changes.
- 3. Did the Covid-19 recession shift the aggregate supply (AS) curve? If so, how?For each situation below, analyse whether it shifts the aggregate demand (AD) curve, the aggregate-supply (AS) curve, both, or neither. Then, if it does shift a curve, construct the AD-AS diagram to show the effect on the economy in the long-run. a) One extraordinary impact of COVID-19 pandemic to the U.S. economy is a massive increase in saving. U.S. recorded nearly tripled saving over the first two quarters of 2020, from $1.59 trillion annualized in the first quarter to $4.69 trillion in the second, which is by far the biggest increase in modern history. b) The prolonged monsoon rain has caused the production of vegetables in Cameron Highlands fell by about 30%. It has severely impacted a lot of crops, including fruits and flowers. Besides, labor shortages due to the pandemic makes the matters worse.In Figure 1 above,how does the AD-AS model reflect the idea that governments cannot increase real GDP beyond an economy’s equilibrium level that the free-market economy is able to produce? Explain your answer. 2.1. In Figure 2 above, what are the factors that may cause the aggregate demand to shift from AD to AD1? What is the difference between demand pull inflation, cost push inflation, and recession? 2.2. Define and describe: the aggregate supply (AS) curve in the immediate short run. the aggregate supply (AS) curve in the short run. the aggregate supply (AS) in the long run. 3. Listen: Podcast: The Economics of Fiscal Stimulus - Econ EveryDay The Covid-19 pandemic shifted the aggregate supply and aggregate demand curves to the left. Did that increase or decrease real GDP, employment, and inflation rate? Explain your answer.
- 3. Explain why the aggregate demand (AD) curve slopes downward, and explain shifts in the AD curve.Review the problem in the Work It Out titled"Interpreting the AD/AS Model." Like the informationprovided in that feature, Table 24.2 shows informationon aggregate supply, aggregate demand, and the pricelevel for the imaginary country of Xurbia. a. Plot the AD/AS diagram from the data. Identifythe equilibrium.b. Imagine that, as a result of a government taxcut, aggregate demand becomes higher by 50 atevery price level. Identify the new equilibrium.c. How will the new equilibrium alter output? Howwill it alter the price level? What do you thinkwill happen to employment?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.
