In the year 2020, aggregate demand and aggregate supply in the fictional country of Drooble are represented by the curves AD2020AD2020 and AS on the following graph. The price level is 102. The graph also shows two possible outcomes for 2021. The first potential aggregate demand curve is given by the ADAADA curve, resulting in the outcome illustrated by point A. The second potential aggregate demand curve is given by the ADBADB curve, resulting in the outcome illus- trated by point B. PRICE LEVEL 108 107 106 105 104 103 102 101 100 I AD2 02 2020 in Enc I B 00 AS f these bur 6 8 10 12 OUTPUT (Trillions of dollars) ADB ADA 14 16 ? the other Dased on the pasidus amph How would munesh

In the year 2020, aggregate demand and aggregate supply in the fictional country of Drooble are represented by the curves AD2020AD2020 and AS on the following graph. The price level is 102. The graph also shows two possible outcomes for 2021. The first potential aggregate demand curve is given by the ADAADA curve, resulting in the outcome illustrated by point A. The second potential aggregate demand curve is given by the ADBADB curve, resulting in the outcome illus- trated by point B. PRICE LEVEL 108 107 106 105 104 103 102 101 100 I AD2 02 2020 in Enc I B 00 AS f these bur 6 8 10 12 OUTPUT (Trillions of dollars) ADB ADA 14 16 ? the other Dased on the pasidus amph How would munesh

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter9: An Introduction To Basic Macroeconomic Markets

Section: Chapter Questions

Problem 3CQ

See similar textbooks

Similar questions

The imaginary country of Harris Island has theaggregate supply and aggregate demand curves as Table24.3 shows. a. Plot the AD/AS diagram. Identify theequilibrium.b. Would you expect unemployment in thiseconomy to be relatively high or low?c. Would you expect concern about inflation in thiseconomy to be relatively high or low?d. Imagine that consumers begin to lose confidenceabout the state of the economy, and so ADbecomes lower by 275 at every price level.Identify the new aggregate equilibrium.e. How will the shift in AD affect the originaloutput, price level, and employment?
Please no written by hand solution Consider the following economic situations:C = $4.0 trillionI = $1.5 trillionG = $3.0 trillionT = $3.0 trillionNX = $1.0 trillionF = 0mpc = 0.8d = 0.35x = 0.15r = 1% λ = 0.5A. Calculate an expression for the IS, MP and AD curves ( r= ?, IS Y= ?, AD Y=?)B. Let AS curve be given by the relation: π = 6 + 1.5 (Y - 25.5) (i.e. the price shock is zero). What are the equilibrium values of inflation, output and the real interest rate(π, Y, r)?C. Suppose government purchases are raised from $3.0 trillion to $3.5 trillion. What are new short-run equilibrium inflation values, output and the real interest rate (π, Y, r}?D. Suppose a financial crisis begins, and ƒ increases ƒ = 3. (Assume government purchases are again as in part (a). What are the new short-run equilibrium values of inflation, output, and the interest rate (π, Y, r}?(Please solve all the parts with numerical steps so it could be practiced easily)
What effects would each of the following have on aggregate demandor aggregate supply, other things equal? In each case explain the expectedeffects on the equilibrium price level and the level of real output, assumingthat the price level is flexible both upward and downward.· A sizable increase in labor productivity (with no change innominal wages).· An increase in exports that exceeds an increase in imports (notdue to tariffs).
Now suppose that droughts in the Southeast and floods in the Midwest substan-tially reduce food production in the United States. Suppose you are an economistworking for the Federal Reserve.d. Use the aggregate demand–aggregate supply model to illustrate graphically the im-pact in the short run and the long run of this adverse supply shock. Be sure to label:i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curvesshift; v. the short-run equilibrium values; and vi. the long-run equilibrium values.State in words what happens to prices and output in the short run and the long run.e. Use the aggregate demand–aggregate supply model to illustrate graphically your pol-icy recommendation to accommodate this adverse supply shock, assuming that yourtop priority is maintaining full employment in the economy.f. Would you recommend the same policy if your top priority was maintaining the pricestability? Why?
For each of the three theories for the upward slopeof the short-run aggregate-supply curve, e<~rcfullyexplain the following:tl. how the economy recovers from a recession andreturns to its long-run equilibrium without anypoUcy inrerventionb. what determines the speed of that recovery
In the year 2027, aggregate demand and aggregate supply in the imaginary country of Daisen-Oki are represented by the curves AD2027AD2027 and AS on the following graph. The price level is currently 102. The graph also shows two potential outcomes for 2028. The first possible aggregate demand curve is given by the curve labeled ADAADA curve, resulting in the outcome given by point A. The second possible aggregate demand curve is given by the curve labeled ADBADB, resulting in the outcome given by point B. Suppose the unemployment rate is 7% under one of these two outcomes and 5% under the other. Based on the previous graph, you would expect (outcome A/outcome B) to be associated with the higher unemployment rate (7%). If aggregate demand is low in 2028, and the economy is at outcome A, the inflation rate between 2027 and 2028 is . Based on your answers to the previous questions, on the following graph use the purple point (diamond symbol) to plot the unemployment rate and…
What effects would each of the following have on aggregate demandor aggregate supply, other things equal? In each case explain the expectedeffects on the equilibrium price level and the level of real output, assumingthat the price level is flexible both upward and downward. · A reduction in interest rates at each price level.· A major increase in spending for health care by the Federalgovernment.· A 10 percent across-the-board reduction in personal income taxrates.· A sizable increase in labor productivity (with no change innominal wages).· An increase in exports that exceeds an increase in imports (notdue to tariffs).
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?
If price level is held constant and we decrease consumption, the aggregate demand curve will shift to theSelect one:O a. NortheastO b. SouthwestO cc Neither A nor B
Identify three factors that can shift the aggregatedemand curve to the right and three different factorsthat can shift the aggregate demand curve to the left
Keynes notes that when looking at aggregate demand (AD), there are two factors that can cause shifts in import and export demand. Which of the following would be such a factor? A,B,C, OR D ONE ASNWER A Changes in populations B Changes in relative growth rates between countries C Changes in the discount rate D Changes in savings behavior
In 1939, with the U.S. economy not yet fullyrecovered from the Great Depression, PresidentFranklin Roosevelt proclaimed that Thanksgivingwould fall a week earlier than usual so that theshopping period before Christmas would be longer.(The policy was dubbed “Franksgiving.”) Explainwhat President Roosevelt might have been trying toachieve, using the model of aggregate demand andaggregate supply