The economy of Ashenvale is currently in a long-run equilibrium, depicted by point E, on the graph. Economy of Ashenvale Suppose that there is a negative AD shock to the economy and the AD curve shifts to the left, as shown by the AD, curve on the graph. The following steps are designed so that you can explain how the economy adapts to the shock. 2,400- 2,200 a. Using the point drawing tool, plot and label the new short-run equilibrium after this AD shock. 2,000 1,800- AS Carefully follow the instructions above, and only draw the required object. A 1,600- E 1400- ........ In the short run, the equilibrium price will be approximately $ and the new equilibrium quantity will be approximately 1,200- ADO 1.000 B00 AD, B00 400- 200- B,000 6,00 Real GDP (Y) 2.000 4,000 10,000

The economy of Ashenvale is currently in a long-run equilibrium, depicted by point E, on the graph. Economy of Ashenvale Suppose that there is a negative AD shock to the economy and the AD curve shifts to the left, as shown by the AD, curve on the graph. The following steps are designed so that you can explain how the economy adapts to the shock. 2,400- 2,200 a. Using the point drawing tool, plot and label the new short-run equilibrium after this AD shock. 2,000 1,800- AS Carefully follow the instructions above, and only draw the required object. A 1,600- E 1400- ........ In the short run, the equilibrium price will be approximately $ and the new equilibrium quantity will be approximately 1,200- ADO 1.000 B00 AD, B00 400- 200- B,000 6,00 Real GDP (Y) 2.000 4,000 10,000

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter10: Income And Expenditures Equilibrium

Section: Chapter Questions

Problem 17E

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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?
How is recession illustrated in an AD/AS model?
In the AD/AS model, what prevents the economy from achieving equilibrium at potential output?
How is pressure for inflationary price increases shown in an AD/AS model?
What are some of the ways in which exports and imports can affect the AD/AS model?
Draw the AS-AD model for the following scenario: The economy is hit by a negative AD shock. Assume there is no monetary or fiscal policy implemented, and the AD shock is permanent. Make sure to include the initial equilibrium, the short-run equilibrium, and the new long-run equilibrium. Label the axes and the curves.
On the graph, label your starting AD line as AD 2019. Draw a new AD line showing the change to AD due to the pandemic. Label your starting SRAS line as SRAS 2019. Draw a new SRAS line showing the change to supply due to the pandemic.Label the new short-run equilibrium RGDP and Price Level. Does output (i.e. RGDP) increase or decrease in your model? Does the price level increase or decrease in your model? According to the AD-AS model when RGDP falls the unemployment rises and vice versa. Does your graph indicate an increase or decrease in the unemployment rate
5. Short-run shocks in the AD-AS model The following graph shows an economy that is initially in equilibrium. Then, a large decline in stock prices occurs, reducing the wealth of individuals. On the graph, show the economic impact of this event in the short-run aggregate demand and aggregate supply (AD–AS) model by shifting one or both curves. Show the movement of the AD and SRAS on a graph. This event is an example of a decrease in AD/increase in AD/ decrease in SRAS/ increase in SRAS. As a result, the price level declines/rises, and the equilibrium real GDP declines/rises.
a. write down the expressions for the AS and AD curves and interpret the expressions. what is the intuition behind the two curves? what must be true of the model parameters and variables in the long run equilibrium? b. analyze the effects of an oil supply shock that causes a temporary increase in the inflation, using the three-equation model. assume that the shock lasts for one period and then assumes the value 2%. describe the mechanisms that bring the economy back to long-run equilibrium. what happens to aggregate supply? c. consider an economy that starts out in steady state when the central bank decides to make the inflation target more ambitious. analyze the effects of a decrease in the inflation target from m to mt. explain the mechanism behind the adjustment to the new steady state.
Suppose that the negative shock is long-lasting (i.e., the AD curve stays at AD'). Please explain in words how the economy evolves from Point B to the medium-run equilibrium.
Which of the following equations is most likely to represent short-run aggregate supply according to the misperceptions theory? A) Y = 6000 B) Y = 6000 + 50(P - Pe) C) P = 2 D) PY = 12,000 Show Work
Describe an economic environment which would be characterized by the term "stagflation". Using an AD - AS diagram, depict and given an example of a macroeconomic shock that would take an economy from a long - run equilibrium to a situation of stagflation. Label all points on the graph completely and point out the key characteristics associated with stagflation on your graph.