Macroeconomics: Private and Public Choice
15th Edition
ISBN: 9781285453545
Author: Russell Sobel; Richard Stroup; James Gwartney; David Macpherson
Publisher: South-Western College Pub
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Chapter 10, Problem 8CQ
To determine
Identify the self-correcting mechanism to direct the economy to offset the long-run equilibrium.
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Chapter 10 Solutions
Macroeconomics: Private and Public Choice
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- In long-run macroeconomic equilibrium, aggregate quantity demanded equals aggregate quantity supplied equals potential GDP. Select one: True Falsearrow_forwardSuppose that an economy wants to boost available labor hours in order to increase aggregate supply. What is the best way to accomplish this?arrow_forwardThe demand for Home output from foreign countries increased in an economy which was initially in the long-run equilibrium. In the short-short-run, the economy deviated from its full employment output level. After that, in the long-run, which curve (AD, SRAS, or LRAS) would shift to direction (Left or Right)? Curve: Direction:arrow_forward
- Why does the short-run aggregate supply curve slope upward to the right? If the prices of both (a) resources and (b) goods and services increased proportionally (by the same percentage), would business firms be willing to expand output? Why or why not?arrow_forwardA recessionary gap exists when the macro economy is in equilibrium at less than the potential output of the the economy because aggregate demand is insufficient to fully employ all of society' s resources. In other words, the equilibrium (AD = AS) occurs to the left of the vertical long-run supply curve. At this point, potential output is reached ( full employment) and if any unemployment occurs, then it is due to structural or frictional; that is, the economy is at its natural rate of employment. True Falsearrow_forwardA recessionary gap exists when the macro economy is in equilibrium at less than the potential output of the the economy because aggregate demand is insufficient to fully employ all of society' s resources. In other words, the equilibrium (AD = AS) occurs to the left of the vertical long-run supply curve. At this point, potential output is reached ( full employment) and if any unemployment occurs, then it is due to structural or frictional; that is, the economy is at its natural rate of employment. True or falsesarrow_forward
- The Chinese economy is at full employment when the global economy goes into recession. Explain the effects of the global recession on China's macroeconomic equilibrium in the short run (assume there are no fiscal or monetary policy interventions).arrow_forwardThe figure to the right shows an economy in an initial long-run equilibrium at point A a. Using the line drawing tool, show how, if at all, the equilibrium real GDP and the long-run equilibrium price level are affected by an income tax rebate (the return of previously paid taxes) from the government to households, which they can apply only to purchases of goods and services. Properly label this line. Carefully follow the instructions above, and only draw the required objects b. According to your graph, the equilibrium price level here to search O while the equilibrium real GDP ▼arrow_forwardThe task I am struggling with: The economy is in short-run macroeconomic equilibrium at point E1 in the accompanying diagram (see the picture). Based on the diagram, answer the following questions. a) Is the economy facing an inflationary or recessionary gap? b) What policies can the government implement that might bring the economy back to long-run macroeconomic equilibrium? Illustrate with a diagram. c) If the government did not intervene to close this gap, would the economy return to long-run macroeconomic equilibrium? Explain and illustrate with a diagram.Thank you very much for your help.arrow_forward
- In the past two decades, the government of Qatar has made significant investments to increase the level of infrastructure and human capital in the country. Suppose the accompanying graph illustrates the aggregate demand (AD), short‑run aggregate supply (SRAS), and long‑run aggregate supply (LRAS) curves for Qatar before these investments were made. Assume all three curves were impacted by these investments. Adjust the graph to show Qatar’s new long‑run macroeconomic equilibrium.arrow_forwardHow do Keynesians and classicals differ in their beliefs about how long it takes the economy to reach long-run equilibrium? What implications do these differences in beliefs have for Keynesian and classical views about the usefulness of antirecessionary policies? About the types of shocks that cause most recessions?arrow_forwardAssume that the long-run aggregate supply curve is vertical at Y = 3.000 while the short-run aggregate supply curve is horizontal at P=1.0, . The aggregate demand curve is Y = 2(M / P) and M = 1,500. a. If the is initially in long-run equilibrium, what are the values of P and Y? Draw the equilibrium using AD and short and long run AS curves.arrow_forward
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