The economy of Ashenvale is currently in a long-run equilibrium, depicted by point E, on the graph. Suppose that there is an AD shock to the economy and the AD curve shifts right, as shown by the AD, curve on the graph. Which of the following factors would be the most likely cause of the shock? OA. an increase in the factor prices OB. an increase in interest rates OC. a decrease in imports OD. an appreciation of the dollar OE. an increase in technology Price Level (P) 2.400 2,000 1,600- 1,200- 800- 400- 0- 2,000 Economy of Ashenvale V 4,000 Y* ASO Eo E₁ AD₁ 6.000 Real GDP (Y) 8,000 ADO 10,000 Q Q

The economy of Ashenvale is currently in a long-run equilibrium, depicted by point E, on the graph. Suppose that there is an AD shock to the economy and the AD curve shifts right, as shown by the AD, curve on the graph. Which of the following factors would be the most likely cause of the shock? OA. an increase in the factor prices OB. an increase in interest rates OC. a decrease in imports OD. an appreciation of the dollar OE. an increase in technology Price Level (P) 2.400 2,000 1,600- 1,200- 800- 400- 0- 2,000 Economy of Ashenvale V 4,000 Y* ASO Eo E₁ AD₁ 6.000 Real GDP (Y) 8,000 ADO 10,000 Q Q

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter22: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 1P

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Similar questions

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?
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?
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?
Name some factors that could cause AD to shift, and say whether they would shift AD to the tight or to the left.
The imaginary country of Harris Island has the aggregate supply and aggregate demand curves as Table 24.3 shows. Plot the AD/AS diagram. Identify the equilibrium. Would you expect unemployment in this economy to be relatively high or low? Would you expect concern about inflation in this economy to be relatively high or low? Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275 at every price level. Identify the new aggregate equilibrium. How will the shift in AD affect the original output, price level, and employment?
Explain why the short-run aggregate supply curve might be fairly flat in the Keynesian zone of the SRAS curve. How might we tell if we are In the Keynesian zone of the AS?
What are the economic reasons why the AD curve slopes down?
In the AD/AS model, what prevents the economy from achieving equilibrium at potential output?