Refer to the graph to the right. The shift from AS, to AS, shown in the diagram is referred to as a(n) AS, AS, O A. decrease in unit costs. OB. negative aggregate supply shock. O. positive aggregate supply shock. D. increase in unit costs. Real GDP Price Level
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- Suppose that the economy's long-run output level is produces accourding to the following production funciton: Y= AK^1/2L^1/2 (will attach picture of the function) and that A = 5, K = 400 and L = 100 A. What is the economic meaning of the powers of K and L? B. What is the level of output ? produced when the economy in long-run equilibrium. C. Suppose that aggregate demand in the economy is described by the following equation:Y^d = m/kP Where M is the money supply, P is the price level and k = 1/V (velocity of money). Explain carefully where this equation is derived from and its interpretation D. Suppose that M = 2000 and that k = 2. What is the price level P at which the economy is in long-run- equilibrium? Plot such an equilibrium on a diagram with P on the vertical axis and Y on the horizontal axis, by distinguishing between the short-run and the long-run equilibrium. E. Now suppose that starting from the equilibrium of (b) and (c), the Central Bank increases M to 3000. Calculate…1 As more of the nation s systems of river locks 1. As more of the nation’s systems of river locks become deficient, what is happening to the pace at which the U.S. production possibilities curve shifts outward over time? 2. How are deficiencies in the U.S. river system affecting the extent to which the U.S. long-run aggregate supply come shifts rightward each year? 1 As more of the nation s systems of river locksSuppose that consumer spending initially rises by $5 billion for every 1 percent rise in household wealth and that investment spending initially rises by $20 billion for every 1 percentage point fall in the real interest rate. Also assume that the economy’s multiplier is 4. a. If household wealth falls by 5 percent because of declining house values, and the real interest rate falls by 3 percentage points, in what direction and by how much will the aggregate demand curve initially shift at each price level?
- 18 - : If aggregate demand increases in an economy while aggregate demand is constant in the short run, which of the following statements is correct for the new equilibrium point?A) price decreases and national income increasesB) price rises national income risesC) price increases and national income does not changeD) price goes up and national income goes downE) price decreases and national income decreases.19 - : In which of the following expressions is the equation of change given correctly?A) MV=VK B) MT=PV C) MV=PT D) MP=VY E) MV=P1-What is the general relationship between a country's price level and the quantitiy of it's domestic output (Real GDP) demanded? Who are the buyers of real US GDP? 2- what assumptions cause the immediate -short-run aggregate supply curve to be horizontal? why is the long-run aggregate supply curve vertical? Explain the shape of the short-run aggregate supply curve . Why is the short-run curve relatively flat to the left of the full employment output and relatively steep to the right ? 3- why does a reduction in aggregate demand tend to reduce real output, rather than the price level? 4- Explain" unemployment can be caused by a decrease of aggregate demand or a decrease of aggregate supply ."In each case , specify the price level outcomes . 5- In early 2001 investment spending declined in the USA. In the 2 months follwing september , 11 2001 attacks on the US, consumption also declined . Use Ad-AS analysis to show the two impacts on Real GDP. 6- Using the concept of the multiplier ,…All else equal, a decline in price of inputs across the economy — such as labor — causes 6) A) Rightward shift of aggregate demand [AD] and a higher real GDP [Y] B) Leftward shift of aggregate supply [AS] and a lower Y C) Rightward shift of AS and a higher Y D) Leftward shift of AD and deflation
- Suppose the government provides incentives (e.g. lower company tax) to firms that engage in high levels of research and development.How would this affect firms’ allocation between different types of investment? Explain. How would this affect the interest rate? Explain. What happens to the quantity of investment overall? Explain.What happens to the short-run aggregate supply curve? Explain. What happens to the long-run aggregate supply curve? Explain. What happens to the value of the dollar? Explain.g What happens to the quantity of net exports demanded? Explain.h What happens to aggregate demand? Explain.c. Assume that the economy of Xenobia is at full employment. Explain how an increase in net investment will affect each of the following.i. Aggregate demandii. Long-run aggregate supplyiii. Output10. Which of the following are reasons why the short-run Aggregate Supply curve shown in the right-hand diagrams may be vertical? a) The economy at this level of real GDP would be operating beyond the full-employmetn level. b) Inflationary expectations have set-in so, the owners of resources are acting on these inflationary expectations and insisting on higher resource prices in anticipation of future products price inflation. c) Short-run Aggregate Suply in the Classical model is always constant. d) All the above e) Only (a) and (b) are true. f) None of the above.
- Why is the aggregate demand curve downsloping? Mention three ways of explanations to answer this. Specify how your explanation differs from the explanation for the downsloping demand curve for a single product.Refer to the table below. Real Output Demanded, Billions Price Level Real Output Supplied, Billions $ 506 108 $ 513 508 104 512 510 100 510 512 96 507 514 92 502 Instructions: Enter your anwers as whole numbers. A). What is the equilibrium level of output? What is the equilibrium price level? B). Suppose that aggregate demand increases such that the amount of real output demanded rises by $ 7 billion at each price level. Insert the new values for real output demanded in the table below. Real Output Demanded, Billions New Real Output Demanded, Billions Price Level Real Output Supplied, Billions $ 506 108 $ 513 508 104 512 510 100 510 512 96 507 514 92 502 What is the new equilibrium level of output? What is the new equilibrium price level? By what percentage will the price level increase? Will this inflation be demand-pull inflation or will it be cost-push inflation? C) If potential real GDP ( that is, full-employment GDP) is $ 510…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