Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
ChapterD: The Expenditure-output Model
Section: Chapter Questions
Problem 12RQ: Exercise D12 What are the components on which the aggregate expenditure function is based?
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Question
Suppose that because of globally adverse meteorological conditions, there are serious concerns of climbing prices in an extensive group of commodities. As a result, people now expect an acute increase in the level of input prices. The figure shows aggregate demand (AD), short‑run aggregate supply (SRAS), and long‑run aggregate supply (LRAS). Move one or more of these curves to describe the short‑run effect this would have in the economy and answer the two questions.
Adjust graph in picture.
In the short run, price level
a. increases.
b. decreases.
c. The change is indeterminate.
In the short run, real GDP (or aggregate output )
a. The change is indeterminate.
b. decreases.
c. increases.
Transcribed Image Text:LRAS
SRAS
AD
Real GDP
Price level
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