The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a = $2 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $2 billion. Suppose the natural level of output is $60 billion of real GDP and that people expect a price level of 110. On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 100, 105, 110, 115, and 120. (? 125 120 AS 115 110 105 LRAS 100 W 95 90 85 80 75 10 20 30 40 50 60 70 80 100 06 OUTPUT (Billions of dollars) The short-run quantity of output supplied by firms will fall below the natural level of output when the actual price level the price level that people expected. PRICE LEVEL
The Greek letter a represents a number that determines how much output responds to unexpected changes in the price level. In this case, assume that a = $2 billion. That is, when the actual price level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural level of output by $2 billion. Suppose the natural level of output is $60 billion of real GDP and that people expect a price level of 110. On the following graph, use the purple line (diamond symbol) to plot this economy's long-run aggregate supply (LRAS) curve. Then use the orange line segments (square symbol) to plot the economy's short-run aggregate supply (AS) curve at each of the following price levels: 100, 105, 110, 115, and 120. (? 125 120 AS 115 110 105 LRAS 100 W 95 90 85 80 75 10 20 30 40 50 60 70 80 100 06 OUTPUT (Billions of dollars) The short-run quantity of output supplied by firms will fall below the natural level of output when the actual price level the price level that people expected. PRICE LEVEL
Chapter19: The Keynesian Model In Action
Section: Chapter Questions
Problem 8SQP
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Transcribed Image Text:The Greek letter a represents a number that determines how much output responds to unexpected
changes in the price level. In this case, assume that a = $2 billion. That is, when the actual price
level exceeds the expected price level by 1, the quantity of output supplied will exceed the natural
level of output by $2 billion.
Suppose the natural level of output is $60 billion of real GDP and that people expect a price level of
110.
On the following graph, use the purple line (diamond symbol) to plot this economy's long-run
aggregate supply (LRAS) curve. Then use the orange line segments (square symbol) to plot the
economy's short-run aggregate supply (AS) curve at each of the following price levels: 100, 105,
110, 115, and 120.
(?
125
120
AS
115
110
105
LRAS
100
W 95
90
85
80
75
10
20
30
40
50
60
70
80
100
06
OUTPUT (Billions of dollars)
The short-run quantity of output supplied by firms will fall below the natural level of output when
the actual price level
the price level that people expected.
PRICE LEVEL
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